New, Imaginative Index Trackers Attract Attention

Backtesting shows they can outperform traditional indices.

- Lucas de Lange

Internationally, and in South Africa, investment in exchange-traded funds (ETFs) is increasing, and imaginative developers of indices and the ETFs that track them are continually creating interesting new products.

One that draws quite a lot of attention is the impressive-sounding S&P500 Quality, Value & Momentum Multi-Factor Index, which combines three index themes: quality, which is based on financial health; value stocks, comprising good shares that are temporarily cheap; and momentum stocks, representing strong-running shares.

An important reason for the interest shown in this newbie is that backtesting from 1994 to 2017 shows that it would have outperformed the S&P500 Index by close on 91%. During this period, the S&P500 would have earned an average of 5.5%, while the S&P500 Quality, Value & Momentum Multi-Factor would have yielded 10.5%.