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Analyzing Factor Exposures and Constructing Multifactor Portfolios

The best recent white papers on factor investing

What portion of equity portfolio returns is attributable to factor exposures?  FTSE Russell looks for answers by constructing multiple portfolios with similar factor exposures and then examining their performance.  What's the best way to construct a multifactor portfolio? CFA Institute provides a guide for combining factors into long-only multifactor strategies. 

The white papers below cover all of the above, along with JP Morgan Asset Management's Q4 factor return outlook and several case studies on factor implementation. 

factor exposure

Factor Indexes and Factor Exposure Matching (FTSE Russell, 2018)
In this 36-page paper, the authors construct several factor tilt portfolios that differ in terms of construction and weight but have precisely matched factor exposures. They then examine the implications of factor exposure on performance.

Factor-based challenges (LGIM, Sep 2018)
(For compliance reasons, this paper is not accessible in the United States and Canada)
LGIM reviews two case studies on factor implementation.

BlackRock’s Perspective on Factor Investing
(For compliance reasons, this paper is only accessible in the United States)
Factors can be return drivers in addition to merely serving as risk management tools.  BlackRock discusses how 'factor awareness' has altered portfolio management practices such as the setting of asset allocation targets.

Factor Views 4Q 2018 (JP Morgan AM)
This paper by JP Morgan Asset Management provides a helpful overview of the performance of equity factors in the last quarter, and the prospects for the rest of the year.

A Framework for Analyzing Multifactor Funds (Morningstar, 2018)
Morningstar presents a framework to help investors better understand equity multifactor funds' approaches to portfolio construction and set realistic expectations.

Factor investing in fixed income (BNP Paribas AM, May 2018)
BNP Paribas chats with UK pension trustees about factor implementation in their fixed income portfolios as well as the emergence and adoption of factor investing in debt and credit markets in a general sense. 

Constructing Long-Only Multifactor Strategies (CFA Institute, 2018)
Investors considering long-only multifactor strategies should look at the pros and cons of two approaches for combining factors - portfolio blending and signal blending. 

Earnings Revision Overlay on Fundamental Factors in Asia (S&P Dow Jones Indices, 2018)
S&P Dow Jones Indices explores the effectiveness of overlaying earnings revision strategies on traditional fundamental value and quality factors across seven Pan Asian markets between March 31, 2006, and March 31, 2018.

Factor Strategies in Brazil: A Practitioner’s Guide (S&P Dow Jones Indices, Jul 2018)
This paper peers into how factor strategies such as momentum, value, and low volatility are used in Brazil.

Stress-Testing Smart Beta ETFs: What's in a Name? (Axioma, Jul 2018)
Smart Beta ETFs should be stress tested so that investors fully understand correlations to other factors and the potential short-term impacts of economic or market-related events. 

Ignored Risks of Factor Investing (Research Affiliates, 2018)
To achieve the best outcomes, long-only factor investors should understand the risks that factors pose and be prepared for possible prolonged periods of underperformance.

The Rise of Factor Investing: Investing for DC savers (Aon Hewitt, 2018)
Aon Hewitt looks at how to achieve ‘style diversification’ and how factor investing can help to improve equity portfolios.