‘Great rotation’ highlights clash over unseen risks in factor investing

Gaps in performance of apparently similar products rekindle debate on index construction

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From the US election to mid-January a 126 basis point gap opened up in the returns of two popular iShares exchange-traded funds (ETFs), even though both aim to capture a premium from the same value factor (see table 1).

Meanwhile, similar disparities have been in evidence elsewhere across the factor investing space.

Numbers collated by Morningstar for Risk.net show the gap between the best and worst of the main quality-factor ETFs, for example, was 136bp over the same period (see table 2).

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