Single-factor indices linked to robust factors (those factors supported by theoretical and empirical evidence shown to produce excess returns across multiple periods and across geographies) offer investors the potential to earn a return premium relative to market-capitalization indices. Single-factor indices, however, may have high tracking error and can be prone to long periods of underperformance. By combining multiple factor exposures, investors can achieve increased diversification and lower tracking error, resulting in a smoother path to outperformance relative to a single-factor approach.
The RAFI Multi-Factor Index strategy equally weights the five factors of value, low volatility, quality, momentum, and size. The RAFI Value Factor Index, RAFI Low Volatility Factor Index, RAFI Quality Factor Index, and RAFI Size Factor Index are also available on a stand-alone basis to provide investors with a range of choices to meet their unique preferences.