Incorporating factor strategies into a style-investing framework

Passive investors can gain targeted exposure to value and growth companies with factor strategies.

KEY TAKEAWAYS

• Passive investors who use a style framework to build portfolios can achieve targeted access to value and growth companies with factor strategies.
• Traditional style indexes may not offer pure exposure to value and growth stocks because they often must account for an entire stock universe.
• Value factor strategies can be more selective when identifying inexpensive stocks, so they often boast more targeted exposure to value companies.
• Momentum factor strategies have had higher realized earnings growth than traditional growth indexes over the long term.
• When combined, value and momentum factor strategies have the potential to provide more diversification than a combination of traditional value and growth style indexes, which simply offers broad-market exposure.

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