Retail Funds Dive Into Quant-Factor ETFs After $48 Billion Haul

Traders are lavishing billions of dollars on quant-powered stock trades, boosting an investing style that’s struggled to gain traction in an era when simple bets on traditional large-cap indexes have paid off handsomely.

Money managers have sunk nearly $48 billion into so-called equity smart-beta exchange-traded funds this year, either to ride the biggest market winners or to spread their exposures across the equity landscape.

Pioneered by Wall Street’s smartest minds decades ago, the rules-based allocation method dissects shares based on their traits like how cheap a company looks, dubbed value, or how fast its shares have risen, known as momentum.

After suffering outflows in January, these long-only systematic funds popular with the retail crowd — and offered by the likes of BlackRock Inc. and Vanguard Group Inc. — have now enjoyed five consecutive months of inflows and are on track to beat 2023’s haul.

“The performance stands for itself, with growth, momentum, and even valuation doing well across US markets,” said Patrick McDonough, managing director and portfolio manager at PGIM Quantitative Solutions. “The diversification-focus is driven by investors looking to enjoy the beta run-up that the Magnificent 7 provided, but wanting some divergence away from overly crowded trades.”