The rise in popularity of multi-factor funds has taken hold among many long term investors who seek higher than average returns with lower than average risk.
Multi-factor investing has been proven by economists to be effective at providing such returns, with factors such as market capitalization or relative value providing investors with the opportunity to gain exposure to a group of equities which have better risk-adjusted returns than their counterparts, laying the groundwork for potentially higher returns over time.
Of course, the hidden "factor" in many funds which investors often ignore is the management expense ratio. Determining just how much one is paying in fees to have their money managed is an important step for any investor, as any outsized returns from a given investing strategy (assuming it is successful in beating the overall market) may dissipate due to fees which amount to the return premium said investor would have received.
In that regard, when choosing a particular multi-factor fund to consider, I would encourage most investors to consider an exchange traded fund (ETF) which holds a basket of similar securities to that of an actively managed mutual fund.
Additionally, picking ETFs with relatively low turnover rates and subsequently lower fees should help those looking to grow their portfolio over a long period of time to reap the benefit of lower fees overall.
It should be noted that multi-factor investing is certainly a good long term strategy, but can indeed perform poorly over short term or medium term stretches. Be sure to consult an investment advisor before making any investment decisions.
Invest wisely, my friends.
