Large international multifactor funds did not follow cheaper stocks in the third quarter
In the third quarter the typical international multifactor fund gained 0.9%, in line with developed markets outside the United States, while cheaper stocks in those markets gained 3.2%.
Key takeaways
In the third quarter, cheaper stocks led developed markets outside the United States, and the international multifactor funds holding most of the money did not follow them.
A multifactor fund tilts a portfolio toward several characteristics of a stock at once, such as cheapness, a rising price, high profits or a price that swings less, rather than holding each company in proportion to its size.
Cheaper stocks outside the United States
Russell Investments measured the quarter in its third-quarter factor report. Its value measures are price against earnings, book value and cash flow. Its momentum measures include whether share prices have been rising.
"Value had a great run in Q3 2026, ranking among the top 10% of quarterly observations since 2002, while Momentum underperformed, ranking among the bottom 20%."
Russell's own value portfolios beat their markets in all six regions the firm follows, a list that includes developed markets outside the United States. Momentum lagged in every one of those regions.
MSCI World ex USA is the index of large and midsize companies in developed markets outside the United States. The rows below are MSCI's own versions of that market.
Cheaper stocks means cheaper than others in the same industry, judged by price against book value, expected earnings and cash flow. Higher-quality stocks means higher profits, less debt and steadier earnings than those peers. Rising-price stocks are the ones whose prices have been rising, and steadier stocks are a version of the market built to hold down its swings.
The figures are from MSCI's Sept. 30, 2026 factsheets. They include dividends, after foreign withholding taxes, in dollars. Both columns end that day, and the quarter is the last three of the 12 months.
Cheaper stocks gained 3.2% in the quarter, against 0.9% for the market. Over the 12 months through Sept. 30 the gap was wider: 25.7% against 15.9%.
Steadier stocks led the quarter too, at 3.5%. Over those 12 months they gained 10.9%, behind the market.
What the large funds were built to do
Thirty funds in the category hold $52.8 billion as of Nov. 11. Three of them hold about 68% of that: Dimensional International Core Equity Market ETF DFAI at $18.4 billion, Fidelity Enhanced International ETF FENI at $11.6 billion, and Goldman Sachs ActiveBeta International Equity ETF GSIE at $6.1 billion.
Three funds sit far above the rest of the category
DFAI seeks long-term capital appreciation. Its Feb. 28, 2026 prospectus says the fund takes a modestly larger stake in smaller, cheaper and more profitable companies than those companies have in a market-cap portfolio of developed markets outside the United States. In the quarter it gained 0.9%, in line with the market in the table.
GSIE seeks to track an index built from that same market. Its Dec. 29, 2025 prospectus says the index combines four characteristics in equal weights: cheapness, a rising or falling share price, profitability, and a share price that swings less. It also gained 0.9% in the quarter.
FENI seeks capital appreciation. Fidelity says, in its Sept. 30, 2026 fact sheet, that the fund uses quantitative analysis to select stocks that may return more than the MSCI EAFE Index, which leaves out Canada as well as the United States. On that sheet the portfolio gained 0.5% in the quarter and the share price was flat, against 0.8% for the index.
The midpoint of the 30 funds was a gain of 0.9% in the quarter.
A holder of the three was not promised the cheaper-stock result.
GSIE gives equal weight to rising-price stocks, which fell 0.3% in the quarter, and to cheaper stocks and steadier stocks, which led. An equal blend of those is built to finish near the market, not on the leader.
DFAI's extra exposure to cheaper stocks is modest by its own prospectus, and the quarter did not show it.
FENI is built to pick stocks that may return more than its own market, not to own the cheapest stocks.
Most of the money is in funds that were not built as a bet on cheaper stocks, and in this quarter they did not behave like one.
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