Factor ETFs

Factor ETFs package value, quality, momentum and other tilts into a single fund. Here is how they are built, what to compare before buying one and why two funds with the same label can hold very different stocks.

Rules-based funds

Factor ETFs, sometimes called smart beta funds, follow an index that screens and weights stocks by one or more factors instead of by market value alone. A momentum ETF might hold the top-ranked stocks by past return, while a quality ETF might favor high profitability and low debt. They sit between plain index funds and active funds.

A factor ETF is a basket built by rules.

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