Before You Start
- Basic understanding of ETFs and how to buy them via a European broker
- Familiarity with the concept of index investing
- Comfortable using online investment platforms (DEGIRO, Trade Republic, Scalable Capital, etc.)
- Awareness of your own risk tolerance and investment goals
Time needed: 30–60 minutes to read, research, and action
What you'll need: An account with a European broker (e.g., DEGIRO, Trade Republic, Scalable Capital), access to fund factsheets, and a small amount of capital to invest (e.g., €100+)
Factor investing is gaining traction among European ETF investors looking to go beyond traditional index funds. But what exactly are “factors,” why do they matter, and how can you tap into them using accessible, low-cost UCITS ETFs in Europe?
In this step-by-step guide, we’ll break down factor investing Europe ETFs: the core concepts, the main types of factors, how to access them via real funds, and how to build a simple, diversified allocation. We’ll also walk through EUR-based examples, platform-specific instructions, and practical risk/return tips.
As we covered in our ETF Investing for Beginners in Europe: The 2026 Step-by-Step Starter Guide, understanding the why behind each investment approach helps you build confidence and avoid costly mistakes. Let’s dive deeper into the world of smart beta and factor-based ETFs.
Step 1: Understand What Factor Investing Is (and Why It Matters)
What to do: Learn what “factors” are and why they can improve your ETF portfolio.
Why it matters: Traditional index investing gives you market returns. Factor investing aims to capture systematic sources of return (like value or quality) that have historically outperformed the market over time—often with different risk profiles.
- Factors are characteristics of stocks (or bonds) that explain why some investments perform better or worse than others. Academic research has validated several factors over decades.
- Factor investing is sometimes called “smart beta” because it combines elements of passive (rules-based) and active (choosing exposures) investing.
Main factors used in Europe:
- Value: Cheaper stocks (relative to earnings, book value, etc.)
- Growth: Companies with high revenue or earnings growth
- Quality: Firms with strong balance sheets and profits
- Momentum: Stocks that have performed well recently
- Size: Smaller companies (small-cap) vs. large-cap
- Low Volatility: Less price fluctuation than the market
These factors can be combined or targeted individually using ETFs.
Pro Tip
Factor investing is not about predicting short-term winners. It’s about tilting your portfolio toward proven sources of long-term excess return (“premia”).
What can go wrong: Factors can underperform for long periods. Chasing recent winners or over-allocating to a single factor increases risk.
Step 2: Get to Know the Main Factor ETFs Available to Europeans
What to do: Identify reputable, UCITS-compliant ETFs tracking each major factor—using platforms available to European investors.
Why it matters: Not all ETFs are accessible or tax-efficient for Europeans. UCITS ETFs ensure regulatory protection, tax advantages, and EUR trading options.
Here are leading factor ETFs available via European brokers (all are UCITS):
| Factor | Example ETF (ISIN) | TER | Where to Buy |
|---|---|---|---|
| Value | iShares Edge MSCI World Value Factor UCITS ETF (IE00BP3QZB59) | 0.30% | DEGIRO, Trade Republic, Scalable Capital |
| Quality | Xtrackers MSCI World Quality Factor UCITS ETF (IE00BL25JP72) | 0.25% | DEGIRO, Scalable Capital |
| Momentum | iShares Edge MSCI World Momentum Factor UCITS ETF (IE00BL25JP02) | 0.30% | DEGIRO, Trade Republic |
| Low Volatility | iShares Edge MSCI World Minimum Volatility UCITS ETF (IE00B8FHGS14) | 0.30% | DEGIRO, Trade Republic, Scalable Capital |
| Size (Small Cap) | SPDR MSCI World Small Cap UCITS ETF (IE00BCBJG560) | 0.45% | DEGIRO, Scalable Capital |
| Growth | Xtrackers MSCI World Growth UCITS ETF (IE00BM67HK77) | 0.25% | DEGIRO, Scalable Capital |
What can go wrong: Some brokers may not offer every ETF; always check availability and make sure the ETF is UCITS-compliant. Watch out for higher TERs (total expense ratios) in niche factor ETFs.
Step 3: Compare Factor Risk/Return with Simple EUR-Based Examples
What to do: Use case studies to understand how different factors behave compared to a standard market ETF.
Why it matters: Each factor has its own risk/return profile. For example, value stocks can lag during growth booms; low-volatility stocks may underperform in bull markets. Knowing what to expect helps you stick to your plan.
EUR-based example (2014–2024):
- Suppose you invested €10,000 in 2014 in each of the following:
- Market ETF: iShares Core MSCI World UCITS ETF (EUNL, IE00B4L5Y983)
- Value ETF: iShares Edge MSCI World Value Factor UCITS ETF (IE00BP3QZB59)
- Quality ETF: Xtrackers MSCI World Quality Factor UCITS ETF (IE00BL25JP72)
- Low Volatility ETF: iShares Edge MSCI World Minimum Volatility UCITS ETF (IE00B8FHGS14)
Results (approximate, after fees, in EUR):
- Market ETF (EUNL): €25,700
- Value ETF: €23,900
- Quality ETF: €27,000
- Low Volatility ETF: €22,400
Notice how:
- The quality factor outperformed the market, while value and low-volatility lagged—mainly due to a decade of growth-led markets.
- Factor performance is cyclical. Value, for instance, tends to outperform after market downturns.
- Risk: “Low volatility” ETFs dropped less during market crashes (e.g., March 2020), but may underperform in strong bull markets.
Pro Tip
Use free portfolio tracking tools (like justETF) to monitor factor ETF performance in EUR and compare them to your “core” market ETFs.
What can go wrong: Past performance is not a guarantee. If you only buy factors after they’ve outperformed, you risk buying high and selling low.
Step 4: Build a Simple Factor ETF Allocation (With Platform Instructions)
What to do: Create a diversified allocation that combines core market exposure with one or more factor tilts. Use your chosen European broker to implement this.
Why it matters: Most experts recommend using factor ETFs as a “satellite” around a broad, low-cost market ETF. This keeps costs low and reduces the risk of underperformance if one factor lags.
Example allocation (for a €10,000 portfolio):
- Core: 70% (€7,000) in iShares Core MSCI World UCITS ETF (EUNL)
- Factor tilts: 15% (€1,500) in Quality ETF (Xtrackers MSCI World Quality Factor UCITS ETF)
15% (€1,500) in Value ETF (iShares Edge MSCI World Value Factor UCITS ETF)
This approach gives you broad diversification while tilting toward factors with long-term evidence of outperformance.
How to buy these ETFs on Trade Republic:
- Open the Trade Republic app.
- Tap Search and enter the ETF name or ISIN (e.g., “IE00BL25JP72” for Quality).
- Select the ETF, then tap Buy.
- Choose the amount in EUR (e.g., €1,500).
- Confirm your purchase. Repeat for each ETF in your allocation.
Expected outcome: You should now see your factor ETF holdings alongside your core ETF, with allocations matching your plan.
Pro Tip
Most brokers (like DEGIRO and Scalable Capital) let you set up automated savings plans for ETFs—including factor funds. This helps you cost-average and avoid timing mistakes.
What can go wrong: Overcomplicating your portfolio with too many factors or neglecting your core allocation can increase costs and tracking error.
For a hands-off approach, see our guide: How to Build a Lazy ETF Portfolio in Europe: 2026 Template for Hands-Off Investors.
Step 5: Monitor, Rebalance, and Stay Disciplined
What to do: Check your factor ETF allocations once or twice a year. Rebalance if allocations drift by more than 5–10% from your targets.
Why it matters: Factor performance can swing, causing your portfolio to become too concentrated in a single risk. Rebalancing forces you to buy low and sell high.
How to do it (example on DEGIRO):
- Log in to your DEGIRO account.
- Go to Portfolio and review your ETF weights.
- If any ETF is more than 5–10% above/below your target, sell/buy as needed to restore balance.
- Download your account statement for tracking and tax purposes.
Expected outcome: Your portfolio returns to your intended strategy, reducing the risk of “factor drift.”
Pro Tip
Use an app like justETF or your broker’s portfolio tools to get automated rebalancing alerts.
What can go wrong: Over-rebalancing can increase fees and taxes. Avoid making changes based on short-term factor performance or market noise.
Common Mistakes
- Chasing the latest “hot” factor after strong returns
- Neglecting core market exposure in favor of narrow factors
- Ignoring costs—factor ETFs can have higher TERs
- Not checking UCITS status (avoid US-domiciled ETFs for tax reasons)
- Overcomplicating your portfolio with too many overlapping funds
- Failing to rebalance and drifting away from your plan
Next Steps
- Review your current ETF portfolio and identify any factor tilts you already have.
- Research factor ETF factsheets and performance history in EUR.
- Explore savings plan features for factor ETFs on your broker’s platform.
- Read our Beginner’s Guide to Sector Diversification Using European and Global ETFs for more on combining factors and sectors.
- For a complete foundation, see our ETF Investing for Beginners in Europe guide.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Always do your own research and consider consulting a qualified financial advisor before making investment decisions.