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Factor Investing Update: June 2020

  • ,  Chief Executive |
  • 12 Jun 2020
  • Updated 15 Jun 2020

Recent Insights into Factor Investing

Is now a good time to revisit factor investing strategies? Some strategies focusing on Low Volatility appear to have come unstuck in the recent downturn, while others using the Value factor have been showing signs of life in the recent market rally after a decade of underperformance.

This collection of recent papers, podcasts and videos explores several aspects of factor investing. Topics covered include an examination of what lies behind Value's long-run underperformance, debates about how many factors actually offer investors any returns and if single-factor investing is better than multi-factor investing. Research into the attributes considered valuable in devising a Quality factor, and why some supposedly Low Volatility strategies failed to live up the their billing during the recent downturn, may be of particular interest.

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How to Navigate the Equity ‘Factor Zoo’ (Robeco, 2020)

Robeco's conclusion after undertaking proprietary research is that many factors often cited in academic literature appear to offer investors little or no discernible benefit. However, they also conclude that more than just the few more familiar factors do exist.

Podcast: Why this crisis favours growth stocks (Baillie Gifford, May 2020)

In this podcast, Tom Slater of Baillie Gifford outlines why Growth stocks have performed much better than Value stocks during the COVID-19 inspired downturn.

Time-Series Variation in Factor Premia and the Business Cycle (Invesco, 2020)

For compliance reasons, this paper is only accessible in certain geographies

In this paper from Invesco, they suggest that using leading economic and risk indicators in conjunction with business cycle identification can aid in the construction of long-only factor rotation studies with statistically significant results.

Factor Performance During COVID-19 Crisis (Franklin Templeton blog, May 2020)

For compliance reasons, this paper is only accessible in certain geographies

Franklin Templeton suggests that the major factors they follow appear to work over a full business cycle and also exhibit signs of cyclicality.

Crowding Risk in Smart Beta Strategies (Scientific Beta, 2020)

This paper from Scientific Beta investigates the evidence for the appearance of 'crowding' in factor strategies.

Portfolio factor allocation schemes (FTSE Russell, 2020)

FTSE Russell investigates the choices investors need to consider when selecting factor investing as a potential investment strategy.

The Corona Quarter (Qontigo, Apr 2020)

The Q1 2020 Insight paper from Qontigo identifies changes in risk and how performance across style factors was affected in a volatile time for markets.

Viral Market Meltdown VIII: Value vs Growth and other debates (Aswath Damodaran, May 2020)

Professor Aswath Damodaran enters the debates about style investing in one of his regular market insight contributions.

Multi-Asset Value Payoff: Is recent underperformance cyclical? (QMA, May 2020)

QMA uses a new methodology to investigate whether Value investing has run its course. They question whether recent underperformance is structural or purely cyclical.

Factor Investing in Credit (Quoniam AM, 2020)

The corporate bond market is the subject of this paper from Quoniam. Analysing the five major factors, they conclude that a multi-factor approach could successfully be deployed by active bond managers.

Value in Recessions and Recoveries (Research Affiliates, 2020)

Research Affiliates notes that Value investing works well after asset bubbles burst, but less well when a fundamental shock like the COVID-19 pandemic occurs. Given Value's extended period of underperformance they argue that some mean reversion is likely.


Why Didn't the Low Vol Factor Protect the Downside? (FTSE Russell blog, May 2020)

In the recent market turmoil, a number of investors were caught out when investing strategies designed to mitigate losses in a downturn did not deliver. FTSE Russell investigates the disparity in performance between defensive strategies that worked and those which did not.

Factor Performance 2010-2019: A lost decade? (Robeco, 2020)

In this paper by Robeco, they explore why factors considered to be of lesser worth have outperformed more conventional, widely accepted ones.

Alternative Alphas and Asset Allocation (CAIA, 2020)

The authors of this paper explore the challenges of asset allocation and provide a potential solution and framework based upon diversification and risk control.

Webinar: When low volatility isn’t low (Intech, May 2020)

For compliance reasons, this paper is only accessible in certain geographies

This webcast from Intech seeks to identify why so many low volatility investing strategies became unstuck during the recent market sell-off.

Video: What Is Quality? (Financial Analysts Journal, 2020)

The Financial Analysts Journal has produced a video graphic which explores why investment professionals seem to disagree on a standard definition of what constitutes the Quality factor.

Webinar: Constructing multi-factor indices (Scientific Beta, 2020)

EDHEC-Risk Institute compares 'bottom-up' approaches that rely on multi-factor score-weighting to build concentrated portfolios that offer superior returns to 'top-down', multi-factor approaches.

Podcast: The sentiment factor (NN IP, Apr 2020)

In this podcast from NN Investment Partners, their CIO and CEO focus upon sentiment data, its measurement and potential applications in investing strategies.