Snapshots

The Multifactor Advantage - USMF

December 16, 2019

Find out why a multifactor approach might be beneficial.

Investors are increasingly replacing active solutions with quantitative investing approaches focused on factors. At WisdomTree, we believe a multifactor approach can be beneficial. After all, academics have proven that factors can lead to outperformance, like when small caps outperform large caps or value outperforms growth. Consider, for example, that you're trying to build a winning baseball team. You could fill your roster with the best pitchers, but if your pitchers can’t hit when they come up to bat, you could lose the game. A baseball team with players that have more than one strength—players that can hit and play the field—has a better chance of winning. The same could be true in terms of investing. If you build your portfolio with a multifactor approach, rather than focusing on a single factor, you might have more favorable results. We think it may be a better idea to build your baseball team—and your portfolio—with some great all-around players. But how do you find them? We developed an innovative proprietary methodology for combining factors that we believe can offer investors the potential they want across markets. The WisdomTree U.S. Multifactor Fund, ticker USMF, was built using this methodology. USMF uses an active, bottom-up method for combining factors that helps to uniquely maximize the potential for higher absolute and risk-adjusted returns. Blends fundamental factors like value and quality with technical indicators like momentum and low correlation to create a systematic proprietary stock selection and weighting model. Balances the risks of factor imbalance, sector bets and stock selection that are typical in active mandates. The result is a portfolio of 200 quality U.S. large cap stocks with potential for higher absolute and risk adjusted returns across different market environments.