After dropping sharply in March, stocks have staged an impressive bounce. And the U.S. stock market is leading the global rally. Which factor ETFs within the overall stock market are outperforming?

Before we talk numbers, keep in mind that factor investing is all about targeting a specific style of investing within the broader stock market. Quality, momentum, dividends, value and low volatility are examples of various factors that have been performance drivers.

In the U.S. exchange-traded fund market, financial advisors can choose funds that use a single or multi-factor approach. These funds use pre-determined formulas for screening stocks to ensure companies within the portfolio are candidates that appropriately reflect the underlying factors.

Who’s winning this year’s factor race? Let’s find out by examining the performance of U.S. equity single- and multi-factor ETFs.

Like with many single-factor dividend-oriented funds, the Vanguard High Dividend Yield ETF (VYM) has experienced asset inflows as investors try to escape the wrath of today’s low-yield rate environment. But the $25 billion fund has been stung by the slump in traditional income sectors like real estate and utilities. As a result, VYM’s year-to-date decline of 16.7% ranks among the worst-performing single-factor ETFs.

The weak performance of the Invesco S&P 500 Low Volatility ETF (SPLV) has been a big surprise. This fund selects 100 stocks from the S&P 500 Index with the lowest realized volatility over the past 12-months. On paper, it sounds like a winning formula, especially considering that market volatility has been crazy this year. Yet despite the historic surge in stock market volatility benchmarks like the CBOE S&P 500 VIX, SPLV has still fallen 16.8% year to date. It’s a good reminder that stocks with low volatility characteristics can still underperform. 

The iShares Edge MSCI USA Momentum Factor ETF (MTUM) is one of the better performing single-factor funds with a modest year-to-date decline of 0.58%. The fund assigns a momentum score to approximately 100 to 150 large- and mid-cap stocks for inclusion in its underlying index. MTUM is heavily weighted in the technology sector (31%), which has contributed significantly to the fund’s outperformance versus its peers.

How have multi-factor ETFs faired?

The Invesco FTSE RAFE US 1000 ETF (PRF), a $3.9 billion multi-factor fund, has declined 16.8% year to date. PRF is among the oldest factor ETFs and it screens large-cap stocks based on book value, cash flow, sales and dividends. Its largest sector exposure is to financial stocks (15%), which has hurt results. The fund’s strategy has struggled mightily this year and is lagging the S&P 500 by about eight percentage points


Factors are cyclical and in constant flux. And titling a client’s portfolio with single-factor ETFs requires attention. While you might be targeting a well-performing factor that’s currently in vogue, that trend could abruptly end in favor of another factor.

Before choosing factor ETFs, you should ask which investing style best matches your client’s personality and goals. That answer will point you toward those factor ETFs that best align with your client’s needs. In some cases, the answer may even lead you to avoid factor investing altogether.

In the end, factor investing is definitely not “set it and forget it.” But keeping abreast of factor trends will help you keep client portfolios correctly positioned for opportunities that arise.

Ron DeLegge is founder and chief portfolio strategist at ETFguide, and is the author of “Habits Of The Investing Greats.”