Tesla in Value ETFs: Factor Investing Complexities

Factor ETFs, also called smart-beta funds, invest in stocks based on specific characteristics like value or momentum.

In 2025, these funds showed wide differences in performance, even among those with similar objectives.

For example, some value ETFs held Tesla, which has a high price-to-earnings ratio, while others did not.

This highlights the importance of looking at a fund's holdings to ensure it matches your investment goals.

Factor investing can be a way to diversify your portfolio, but it's not guaranteed to outperform the market all the time.

It's also a form of reducing diversification, as it focuses on specific segments of the market.

Multifactor funds, which hold a variety of strategies, slightly outperformed in 2025 but trailed the S&P 500 over the past five years.