iShares (owned by BlackRock), in conjunction with the Arizona State Retirement System, just introduced three new “factor” ETFs:

  • iShares MSCI USA Momentum Factor Index Fund (ticker MTUM)
  • iShares MSCI USA Size Factor ETF (ticker SIZE)
  • iShares MSCI USA Value Factor ETF (ticker VLUE).

Why does this matter? The Fama-French three factor model, using the SMB and HML factors, explains over 90% of returns of diversified portfolios, instead of the average 70% explained by the CAPM. The model was further improved by Carhart with an addition of the fourth factor, momentum.

While time will tell how close (and for how long) the above ETFs track their underlying indices and theoretical factors, the introduction of these ETFs is yet another major industry trend in support of the Alpholio™ methodology.

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