Factor Investing - the best papers from 2017 Q3
Factor Investing continues to grow its share of assets under management. Some investors see factor investing as a value added alternative to passive investing. Others see it as a low risk, low cost approach to active management. Either way, there are many different questions for investors to consider: deciding on the right set of strategies; avoiding unintended bias; whether factors should be timed; vehicles for implementation.
Below, we list the top factor investing white papers, downloaded to Savvy Investor in the last three months. Robeco offers "10 things you should know about factor investing". FTSE Russell and Invesco analyse multi-factor approaches. Other papers study factor timing and the risk of a "quant crash". All are free to access for members of Savvy Investor.
Multi-factor indexes: the power of tilting (FTSE Russell, 2017)
In this paper the FTSE Russell illustrates the sequential tilting or “tilt-tilt” methodology. The authors also consider other methodologies, and explain the process of building a single factor and multi-factor index.
Risk and Reward Q3 2017: Multi-factor investing (Invesco)
This issue of "Risk and Reward" examines multi-asset multi-factor investing. The authors investigate low-volatility investing, including the theoretical and behavioural underpinnings, and the question of whether the market is over-crowded.
Ten things you should know about factor investing (Robeco, 2017)
As you might expect, this Robeco paper is divided into ten sections, The paper aims to help investors to determine optimal approaches for the development of factor-based strategies, providing insight into the aspects which make the difference between efficient and inefficient factor strategies.
Why should investors consider credit factors in fixed income? (Invesco, 2017)
For compliance reasons, this paper is available to UK and European members only.
This paper discusses the differences between equity and fixed income factor investing, and explores the unique difficulties in implementing fixed income factors in portfolios.
Factors - Theory, Statistics, and Practice (Stephen A. Ross, 2017)
Stephen Ross describes two camps in the debate on the best way to combine several factors into a single index: those who advocate a top-down “mixed” composite of individual factors and those who prefer a bottom-up “integrated” approach.
Optimal Holdings of Active, Passive and Smart Beta Strategies (QMA, 2017)
QMA examines the role of lower tracking error strategies such as enhanced index and smart beta in large passive core portfolios.
The Risk of a Quant Crash: The August of our Discontent (Cliff Asness, Aug 2017)
Cliff Asness reviews quantitative equity strategies such as factor investing, which led in August 2007 to very large losses and within a few weeks an almost full recovery.
Survey of Quality Investing (Research Affiliates, 2017)
This report explores factor investing and its resurgence in popularity under the moniker “smart beta”. The authors examine the traditional equity factors and the building blocks required for multi-factor products.
A Case Study on how Quant Tools can Improve a Portfolio's Returns (Axioma)
In this paper, Axioma uses a “real world” portfolio to illustrate how the use of quantitative tools can improve a portfolio’s realized returns.
Factor investing challenges: factor timing (Robeco, Aug 2017)
This Robeco report discusses whether investors should try to time their exposure to different factors. Should investors seek to tactically monitor and adjust exposures to different factors and, if so, how should they go about it?
Contrarian Factor Timing is Deceptively Difficult (AQR Capital Management, 2017)
In this AQR paper, the authors argue that the most common factors or styles (namely the momentum, value and defensive styles) are not over-valued, as measured by their value spreads.
Time to Revisit Fundamentals of Quality? (MSCI, July 2017)
Quality, which had lagged last year, has performed well in 2017. But this has left quality stocks at peak valuations for the past decade, confronting investors with a question: Is it time to reduce exposure to this factor?
A Fanatic is One Who Can't Change his Mind and Won't Change the Subject
In his latest blog post, Cliff Asness of AQR Capital Management challenges Rob Arnott of Research Affiliates on a number of factor investing-related issues he recently raised.