This paper analyses a set of characteristics-based indices that were recently launched on the US market and that, it has been argued, outperform standard market cap-weighted indices over particular backtest samples by a considerable margin. We analyse the performance of an exhaustive list of these indices and show that i) the outperformance over value-weighted indices may be negative over long time periods, and ii) that there is no significant outperformance over simple equal-weighted indices.
Furthermore, an analysis of both the style and sector exposures of characteristics-based indices reveals a significant value tilt. When properly adjusting for this tilt, these indices do not show any abnormal performance. Therefore, we argue that the main value these indices add may be to provide investors with a liquid, systematic, and relatively cheap alternative to other value-tilted strategies. However, if
one recognises the possibility to implement tilts of exposures to sector or style factors, constructing factor portfolios that beat the characteristics-based indices in the sense of mean-variance efficiency is straightforward.