What does a factor fund actually hold?
A fund with value or momentum in its name tracks an index whose rule was written by an index provider, and the rule is the product. Two value funds from two providers can agree on the word and disagree on a third of the names. This lesson is how to read the rule off the holdings, using the ETF course's reading of a fund's data block.
Smart beta, plainly
The marketing term is smart beta; the substance is an index fund whose index is built on something other than capitalisation. A cap-weighted index holds the market in proportion to its size. A factor index selects a subset by a score — book-to-market, twelve-month return, return on equity, volatility — and often weights by the score too. It is still a rule and still passive in the ETF course's sense: the decisions were outsourced to a published document. What changed is which document.
What the rule decides
Four things, each visible in the holdings. Selection: how many names from what parent index — a 70/30 split of a thousand names, or the top 125 of a market. Weighting: capitalisation, score, or a blend. Rebalancing frequency: annually for most value indices, semi-annually for the largest momentum and quality indices — even though quality's accounting inputs update every quarter. Constraints: sector caps, single-name caps, minimum liquidity, which are why a value fund may hold something that does not look cheap and a momentum fund something that has stopped rising.
Reading it off the data
Measured on 2026-09-04, the funds' own records reported the momentum fund MTUM.US holding 125 names with an annual holdings turnover of 111% — the whole book replaced and then some, which is what a semi-annual re-sort on price does. The quality fund QUAL.US held 118 names at 58% turnover. The value funds VTV.US and IWD.US held 308 and 864 names at 10% and 15%. The counts say how concentrated the rule is; the turnover says how often it re-decides; and the ETF course's cost waterfall says what each re-decision costs the holder before the premium is counted.
The same word, two rules
VTV.US and IWD.US both say value. One is built from a CRSP index that splits the large-cap universe on a composite of book-to-price, earnings-to-price, dividend yield and sales-to-price; the other from a Russell index that sets book-to-price against two growth variables, forecast two-year earnings growth and five-year historical sales growth. Their ten-year returns to 3 September 2026, measured on 2026-09-04, were about 231% and 200% — thirty points apart on the same idea, with fees of 0.03% and 0.19% explaining only a fraction of it. The rest is the rule. Before holding a factor fund, read its index methodology; the index line on the fund's record is where the document's title appears when the provider gives it.
In the data
The top-ten list is the fastest read of a rule. The momentum fund and the value fund:
A value fund whose top names are banks and oil, a quality fund whose top names are software and pharmaceuticals, a momentum fund whose top names were last year's winners: which they are on the day you look is the rule at work.
Try it now
Write down how many names appear in both lists above. A momentum fund and a value fund with heavy overlap is a sign that value has been winning long enough to become momentum — read the date.
The parent most of these funds are cut from, and the concentration they inherit:
- Per fund, from the annual turnover below: how many times a year does each rule change its mind, and what does that cost according to the ETF course?