Whitepapers — July 6, 2022

Unpacking the alpha components behind the STOXX U.S. Equity Factor Index

by Melissa R. Brown, CFA

The recent launch of the STOXX U.S. Equity Factor Index, which underlies the iShares U.S. Equity Factor ETF (LRGF), highlights the real-world performance benefits of a factor-based approach that seeks to manage risk relative to a capitalization-weighted benchmark.

The STOXX U.S. Equity Factor Index has beaten its parent index, the STOXX USA 900, by roughly 126 basis points a year since 2003. What is more, it has done so with a relatively small level of predicted and realized active risk, producing an information ratio very close to 1. Performance has been consistent as well: The factor index has outpaced its benchmark in more than 75% of the rolling 12-month periods, and more than 88% of the rolling three-year periods, since 2003.

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