Fund Radar: Do factor funds have X-factor?

The battle between active and passive funds is a classic showdown. One side loves the thrill of the hunt and promises higher gains. The other side offers simplicity and lower fees. But here's the kicker: each style has its perks and pitfalls. But what if you didn't have to pick sides? Imagine a blend of both worlds. That's where 'factor investing' comes in. Factor investing combines active and passive investing. It starts with a broad investment universe (like large caps or the top 500 companies) and then narrows it down to 30-50 stocks based on specific characteristics or 'factors' believed to drive better returns, similar to how a fund manager might handpick investments. As such, factor-based funds should ideally perform better than traditional market cap-based passive funds and come close to the returns of an average active fund. But do they? Let's look at four prominent factors in factor investing and how they stack up. Momentum It targets stocks that saw a strong share price appreciation in the past six to 12 months, adjusted for volatility. There are three momentum-based