Factor Investing - the top research papers from July-Sept 2016
The last couple of months have seen some great papers published on the topic of factor investing. Below we have highlighted the top 10 factor investing white papers, uploaded to Savvy Investor since the beginning of July. Topics covered include factor timing, the quality factor, momentum strategies, low volatility strategies, and the use of "smart beta" for credit investing.
Factor investing case studies – the merits of tailor made solutions (Robeco, 2016)
Factor investing is rapidly growing in popularity. It is however important to follow the right factors. This paper by Robeco addresses some of the challenges of factor investing.
My Factor Philippic (Clifford Asness, AQR, 2016)
Cliff Asness examines the efficacy of smart beta strategies and comes to a number of conclusions. He argues that investors should be wary of aggressive factor timing - and instead, should focus on spotting factors they believe in.
To Win With “Smart Beta” Ask If the Price Is Right (Research Affiliates, 2016)
Strategists at Research Affiliates believe that valuations of the most popular factors have been driven way above their past norms. They present their latest findings on factor valuation, using both an aggregate valuation measure and a simple price-to-book ratio.
How Quality Sharpens the Factor Premiums Approach (Robeco, 2016)
Increasingly investors are allocating strategically to factor premiums such as Momentum, Low-Volatility and Value. This paper by Robeco incorporates a fourth factor into the investment process - Quality.
Trend Following: Equity and Bond Crisis Alpha (Man AHL, 2016)
The authors of this paper study time-series momentum strategies in commodities, currencies, bonds, and equity indices during the period 1960-2015. Their research reveals that there was consistent performance both before and after 1985 - periods that were marked by strong bull and bear markets in bonds. The authors also record a number of important risk factors.
Scientific Beta Low Carbon Multi-Beta Multi-Strategy Indices (EDHEC, 2016)
This paper by EDHEC-Risk Institute introduces Scientific Beta's low carbon indices. The indices rely on the principle of reducing an index's carbon footprint by using a mild exclusion of high carbon stocks, while maintaining exposure to rewarded risk factors and an appropriate level of diversification.
Ten Misconceptions about Smart Beta (EDHEC)
Perhaps unsurprisingly, Smart Beta strategies have drawn fierce criticism from both advocates of traditional active management and of traditional passive management. The goal of this paper is to examine some misconceptions and mistaken claims about Smart Beta and to shed light on the underlying issues.
The Profitability of Low Volatility (2016) Robeco
The authors of this paper argue that, regardless of whether it is controlled for the new factors in the five-factor model, market beta exposure in the cross-section is not rewarded with a positive premium.
Low Volatility Strategies Now Behave Like Momentum Plays (OppenheimerFunds, Aug 2016)
In recent years, investors have piled into the Low Volatility strategies. This brief article analyses the main drivers of this strategy, and the implications for investors.
Smart credit investing: harvesting factor premiums (Robeco)
Can factor premiums be extracted from credit markets? This paper from Robeco examines the evidence.