Fund Style Performance
Exchange Traded Funds (ETFs) and Mutual Funds are measured against a named benchmark (e.g., S&P 500). When their return exceeds the benchmark, they out-perform. This excess performance may result from stock selection or allocation. Compensation should occur for the former, not the latter.
Allocation to factor exposures (e.g., growth) are easily accessible and inexpensive to acquire and investors should not pay a premium for them.
Style analysis is based on Noble prize winning research. The process assesses the factor exposures to determine whether a portfolio added value beyond the easily accessible factors.
An outperforming fund is rare.
Capital Risk created the Factordex (i.e., an index of factor risk exposures) to determine if the portfolio added value. The goal is to explain the risk, not the returns.
The inexpensive and liquid factors include :
Market: the overall equity market
Size: market capitalization
Value: book value
Growth: sales & profit growth
Inflation: changes in the price of goods & services
Rates: real long-term interest rates
Currency: foreign exchange
Cash: real short-term interest rates
Easily assess whether a fund added value.
Note: only ETFs are currently supported. Mutual funds coming soon.
Artful Questions. Scientific Answers.
The Factordex: Fund Performance