The ETF, FCTR, employs a unique rotating strategy which has unfortunately led to the fund going in circles rather than delivering on its investment promise. FCTR was designed to offer a unique approach to stock selection by rotating its investment focus among five factors that are believed to outperform the broader market. These factors include value, size, momentum, quality, and low volatility.
However, since its launch, the ETF has failed to live up to expectations. It has shown a disappointing performance, underperforming the S&P 500 by a significant margin. As of the end of September 2021, FCTR was down 8.2%, compared to the S&P 500's gain of 15.9%. This has raised questions about the effectiveness of its rotating strategy and the ability of its factor selection to generate superior returns.
One of the main issues with FCTR's strategy is the timing of its rotations. The fund rotates its factor focus every month based on an algorithm that attempts to predict which factor will outperform in the next month. Unfortunately, this approach has not been successful, leading to underperformance. Furthermore, the fund’s sector allocation has also contributed to its underperformance, with a heavy focus on sectors such as Financials and Industrials, which have underperformed the broader market in recent months.
Despite the disappointing performance, the fund's management remains optimistic about its strategy. They believe that the lackluster performance is a temporary phenomenon and the fund will eventually start outperforming the broader market. However, the reality is that the investment community remains skeptical about the fund's prospects given its track record.
In conclusion, while FCTR's rotating strategy offers a unique approach to stock selection, its performance has been disappointing. It remains to be seen whether the fund can improve its performance and live up to its investment promise. For now, investors should approach the fund with caution, keeping a close eye on its performance and strategy.