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Multi-Factor Indexes Made Simple

Multi-factor index fund allocations are increasingly becoming the preferred approach to factor investing. In this paper, we examine the return/risk characteristics of nine static and dynamic weighting strategies over a 36-year period. The results highlight that a simple strategy that equal weights multiple factor indexes has historically proved more effective than many of the more complex approaches - pointing to its potential as a way to combine factors, especially in the absence of active investment views and skills. However, a dynamic factor weighting strategy based on fundamental signals also has merit if the investor believes she has the insight or skills required.

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