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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