US equity

The evolving use of equity factor ETFs

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Key takeaways
Single factor ETFs
1

Low excess return correlations can make single factor ETFs effective portfolio building blocks.

Multifactor ETFs
2

A range of multifactor ETF options cater to different investment risk tolerances and investment objectives.

Strong demand
3

Equity factor ETFs grew from $390 billion assets under management (AUM) in 2014 to $2.07 trillion in 2024.1

             QVML         OMFL

Factors

  • Quality
  • Value
  • Momentum
  • Quality
  • Size
  • Value
  • Volatility
  • Momentum
Approach
  • Enhanced beta
  • Consists of the top 90% of stocks based on a composite factor score
  • Stocks weighted by market capitalization
  • Factor timing and rotation
  • Factor loading based on economic cycle
  • Stocks weighted by product of factor score and market capitalization
Historical tracking error                                                                                   1.6%                          7.5%

Source: Bloomberg L.P., 06/31/21-12/31/24. QVML inception date: 6/30/21. QVML annualized tracking error relative to S&P 500. OMFL annualized tracking error relative to Russell 1000. Past performance is no guarantee of future results.

Strong demand for factor ETFs

Factor ETFs have experienced significant AUM (assets under management) growth over the past 10 years, ending in 2024. Analyzing AUM over time allows us to understand how client demand has evolved. Over a 10-year period, the compound annual growth rates (CAGRs) of the AUM in various factor ETF categories all experienced meaningful growth rates, with quality and momentum growing the fastest. (See table below.) 

CAGR%
Category 3 Year 5 Year 10 Year  2024 AUM (MM)
Growth 16% 23% 21% $642,604
Value 9% 16% 18% $482,121
Dividend/Yield 11% 15% 14% $414,798
Size 15% 23% 19% $149,839
Quality 37% 33% 36% $100,194
Low Vol -8% -10% 13% $50,788
Momentum 7% 15% 23% $27,454
All Single Factor 13% 17% 18% $1,867,798
Multi Factor 12% 14% 20% $206,847

Source: Bloomberg L.P., as of 12/31/2024.  

In looking at the growth of AUM of five single factor categories, dividend yield is by far the largest category, reaching $415 billion at the end of 2024. (See chart below.) The other categories range from $27 billion to $150 billion. To compare their growth patterns, dividend yield is charted on the right Y-axis, and the other four factor categories on the left Y-axis. Quality has the highest growth rate among this group across all time periods. 

Footnotes

  • 1

    Source: Bloomberg, L.P., data through 12/31/2024.