Can You Beat The Market With Factor-Based ETFs?

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The latest research on index funds reveals that Factor-Based ETFs might beat the market.

The research is impressive.

But there’s no guarantee that these funds will win in the future:

Image by Pixabay

Read Why in My Article at Assetbuilder





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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8 Responses

  1. Jon Ball says:

    Hi

    I have a Saxo Account and am following the Coach Potato approach to investment. I have money in the FTSE 100 and money in the World 100 and also British Government gilts. Since the Brexit vote my portfolio has gone up in value, both FTSE 100 and World 100. I am interested to know if you have any thoughts on how best I should respond to this. My World 100 shares, when converted back into sterling are worth substantially more than in dollars. If I sell them and buy FTSE 100 shares I am buying these at a current high I would imagine. If I invest more money in both I am buying World 100 at a currently poor exchange rate etc. I am interested to know what you would do in this situation.

    • Hi Jon,

      There’s no need to sell anything unless you are retired or you have reached your portfolio’s anniversary date or the allocation is tremendously out of whack and it’s worth hundreds of thousands of pounds. If none of that applies, just keep adding fresh money (from your salary) to the FTSE 100 if it’s the lagging index in your home currency, compared to the world index.

      Cheers,
      Andrew

  2. Jon Ball says:

    Hi Andrew
    Many thanks for that. When you say anniversary date, do you mean one year or two years since opening the account. If so then yes I have reached my anniversary date but are still unsure what I should sell. It strikes me I am better just buying more FTSE 100 as you advise at this stage, what is the advantage of me selling the most high value World 100 shares?

    regards

    Jon

    • Jon,

      It’s simple to just keep buying the FTSE 100 until your account comes back into alignment. If your account is worth a lot of money (and if fresh purchases won’t get close to realigning your allocation) sell some of the global bond index and use the proceeds to buy the FTSE 100 to get back to your original allocation. This is the philosophy that I explain fully in both of my books. Convert your holdings (not physically, but hypothetically) into a single currency so you’ll know how you’re aligned.

      Cheers,
      Andrew

  3. Martin Weber says:

    I am an American English teacher in Saudi Arabia. I would like to invest in American index funds but I can’t seem to find a broker who will let me.

    • Martin,

      Open an account with Interactive Brokers. They’ll let you do it. If you want help with the trading platform, contact Mark Zoril, at PlanVision. He’ll help you for a $96 fee.

      Cheers,
      Andrew

  4. Denis says:

    Hi Andrew,
    In your book you write about standard “Couch Potato” and “Couch Potato with Fundamental Twist”.
    The first is proven and let me say “Safe”, the second is something that maybe more effective, but still not verified, so theoretically better but “Riskier”.
    How do you consider a mixed portfolio that contains the same indexes but cap and fundamental versions, in this way we may halve the risk and still have half the benefit, anyway we will rebalance every year and we will have the possibility to buy the cheaper.
    May they also contain different stocks at some point (Big bubbles) or only different percentages of the exact same stocks? if the former it will result also in a better diversification.

    Here an example:
    40% Government Bond 1–3 yr. UCITS IBGS 0.20%
    20% Vanguard FTSE All-World UCITS ETF VWRL 0.25%
    20% PowerShares FTSE RAFI All-World 3000 PSRW 0.50%
    10% Vanguard FTSE Developed Europe VEUR 0.12%
    10% PowerShares FTSE RAFI Europe PSRE 0.50%

    AVG cost: 0.2920%
    Fundamental Only would cost 0.4250%
    CAP Only would cost 0.1855%

    • Hi Denis,

      You could certainly do this. But here’s what will happen. You might go 10-12 years when either the cap-weighted ETFs or the fundamental ETFs start outperforming the others. When that happens (trust me, it will) you’ll need to have the grit to stick to your allocation and not jump ship into one specific method (the outperforming one). If you jumped ship, you would be setting yourself up for lacklustre performance. You would end up selling low to buy high. I would prefer not to have the temptation and just stick to one method. But if you’re the kind of person who could eat dirt daily (if you got scientific proof it was good for you) then you can handle this portfolio.

      Cheers,
      Andrew

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