Fund Focus: the ETFs outsmarting stock pickers

“Style over substance” is a term with some application to fund performance. Because while many moving parts can influence a portfolio’s returns, investment style is a pretty big one.

That’s clear enough from recent history. “Quality” funds such as those run by Terry Smith and Nick Train, backing companies that look strong and well established as per certain metrics, have had another dismal year. Value funds such as Ranmore Global Equity D GBP have prospered.

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But if a good chunk of performance is led by style, there might be a better way to capture this than relying on a stock picker.

Step forward, “factor” exchange-traded funds (ETF). Such funds often work in a more quantitative fashion, tracking a basket of stocks that score well on metrics associated with a certain style, from quality to value.

They have done their job well of late – although we need to remember a few potential shortcomings.

Factor funds have beaten stock pickers

To dabble in industry jargon, traditional factor funds often fall under the label of “smart beta”, a halfway house between active and passive.

They should appeal to investors if they pass a few tests, including being cheaper, simpler and (most importantly) more successful than active funds when it comes to returns.

There aren’t many factor ETFs of this ilk out there nowadays, but a good example is the iShares Edge range. A look at their MSCI World funds gives a flavour of how the franchise has fared.

With unloved markets returning to form and sectors such as financials and industrials performing well, value investing has really won the day.

The iShares Edge MSCI Wld Val Fctr ETF $Acc GBP (LSE:IWFV) has done well to capture this, returning 30% over just 12 months and beating many stock pickers.

Source: FE Analytics as at 28/01/2026. Past performance is not a guide to future performance.

Getting inside the fund

If the ETF’s performance is appealing, it’s worth looking at how it invests. It tracks the MSCI World Enhanced Value index, looking to home in on MSCI World constituents that seem undervalued relative to their fundamentals.

It, unsurprisingly, is less exposed to the US than the mainstream global market, with a 42% allocation.

But the fund has tended to follow a ‘sector-neutral’ approach, meaning it stays roughly in line with the main index when it comes to sector allocations.

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As such, it has lots of tech exposure (but no Magnificent Seven) with its top four holdings, Micron Technology Inc (NASDAQ:MU), Cisco Systems Inc (NASDAQ:CSCO), Intel Corp (NASDAQ:INTC) and Qualcomm Inc (NASDAQ:QCOM), all from that sector.

Two are sitting on huge gains: the Micron share price is up by around 370% in local currency terms over a year, while Intel shares are up by around 135%.

There are plenty of Japanese shares in the fund, and some UK income stalwarts such as British American Tobacco (LSE:BATS) and HSBC Holdings (LSE:HSBA). The ETF has around 400 holdings, and pretty small position sizes.

Source: FE Analytics as at 28/01/2026. Past performance is not a guide to future performance.

It’s important to weigh up whether this form of value exposure is for you.

Yes, it’s simple and has worked when you might expect, for example doing well last year and in 2022 when interest rates rose in earnest. But the tech exposure might give some pause for thought.

It’s also worth noting that the ETF only rebalances every six months, meaning it’s not the most nimble.

Plus its MSCI World universe restricts it to developed market equities, while some active funds, such as Ranmore, very happily venture further afield.

Blurred lines

The presence of hard-charging tech shares in a value ETF shows that you don’t always get what you expect when targeting a given style. This point is demonstrated more forcefully if we look at the iShares Edge MSCI World Quality Factor ETF.

The fund has, again, beaten some well-known funds associated with its style, making a 5.4% gain over 12 months that saw Fundsmith Equity I Accand Lindsell Train Global Equity B GBP Inc lose 5.6% and 8.5%, respectively.

But it does look more closely aligned with the main MSCI World index than those active funds.

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The quality ETF has around 5% apiece in top three holdings NVIDIA Corp (NASDAQ:NVDA), Apple Inc (NASDAQ:AAPL) and Microsoft Corp (NASDAQ:MSFT), with Meta Platforms Inc Class A (NASDAQ:META) and Alphabet Inc Class A (NASDAQ:GOOGL) also in its top 10 list.

It has a big allocation to the tech sector, plus a whopping 72.6% allocation to US shares.

Investors might expect it to perform more in line with the MSCI World index than the value ETF, which does make some sense.

And they might wish to lean more directly into the quality style, especially if they expect it to rebound after a run of poor performance.

There are ways to be more granular here, be it by backing individual stocks (perhaps a RELX (LSE:REL)or Diageo (LSE:DGE)) or fund managers who lean into the quality style, from Lindsell Train to Evenlode.

Meanwhile, on the value front you could do this, or use a sector fund focused on a classic “value” area such as financials. But these approaches, for the time being, have been more volatile and less certain.