Question: You are evaluating two quantitative factor funds Vanguard Small-Value ETF (VBR) and Blackrock's iShares MSCI USA Quality Factor ETF (QUAL). Information about the two funds

You are evaluating two quantitative factor funds Vanguard Small-Value ETF (VBR) and Blackrock's iShares MSCI USA Quality Factor ETF (QUAL). Information about the two funds is provided below. Multi-factor regression model estimates are based on monthly excess returns and are also shown below:

VBR QUAL Standard 0.058 0.031 deviation of excess returns Residual standard 0.048 0.027 deviation Multi-factor 0.0017 0.0059 + model regression +0.3264 X MRP 0.3422 X MRP + 0.2509 X SMB +0.0314 X SMB +0.1208 X HML +0.0739 X HML -0.2843 X MOM - 0.0473 X MOM + 0.6265 X BAB +0.1352 X BAB - 0.4329 X QMJ -0.2490 X QMJ R2 29% 14% Further information about factor returns (monthly frequency): Factor Average Return (%) Standard deviation of returns (%) Market excess return (MRP) 0.987 3.40 Small minus big (SMB) -0.165 2.42 High minus low (HML) -0.345 2.47 Winner minus loser (MOM) 0.235 3.45 Low-beta-bias (BAB) 0.599 2.15 Quality minus Junk (QMJ) 0.580 3.09

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