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Factor Investing: Stick or Twist?

  • ,  Chief Executive |
  • 11 Nov 2019
  • Updated 13 Nov 2019

The shift from Single to Multi-Factor investing strategies

Factor investing continues to gain market share in investor portfolios, though in recent years a more nuanced approach is appearing, one in which investors appear to be abandoning single-factor exposure and opting for an approach that favours multi-factor investing.

Arguments differ as to why this shift might be underway; diversification benefits have been cited, as has disillusionment with the relative underperformance of single-factor strategies. The higher fees available on more complex products are attractive to product providers facing challenges elsewhere. However, this appears not to be the whole story. To aid and inform discussion, Savvy Investor has brought together the latest investment white papers from both sides of the argument.

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Invesco Global Factor Investing Study 2019

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

In their 4th Annual Global Investing Study, Invesco interviews over 240 institutional investors to provide the largest analysis of global factor investing.

Risk & Reward: Research and Investment Strategies (Invesco, 2019)

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

Invesco's Jubilee edition of Risk & Reward magazine compiles excerpts of their thought leadership papers from over the past 30 years.

Uncovering the promises and challenges of factor investing (Robeco, 2019)

Benedikt Henne, from Allianz Global Investors, and Robeco’s Joop Huij consider how the factor-based investing landscape may be changing.

Value investing is down. But is it out? (MSCI blog, Oct 2019)

MSCI's short paper finds that significant regional differences exist in the performance of individual value factors, whilst also noting that factor strategies are subject to cyclicality.

Factor Report (Lazard AM, Nov 2019)

Lazard's monthly dive into the world of factor investing.

Smart beta has crossed the Rubicon (FTSE Russell blog, Jun 2019)

FTSE Russell's annual global survey of smart beta usage finds that there has been a surge in the adoption of a multi-factor approach in the last year.

How Painful Can Factor Investing Get? (Enterprising Investor blog, 2019)

Factor Research's Nicolas Rabener provides a long-term perspective on factor investing and argues that even after disappointing recent results, investors should perhaps 'keep the faith'.

Alice’s Adventures in Factorland: Three Blunders That Plague Factor Investing (Research Affiliates, 2019)

The authors try to explain why in recent times, factor investing has to many investors, fallen far short of expectations.

What explains the poor performance of factor strategies over the last 3 years? (Scientific Beta, 2019)

In this paper Scientific Beta suggests that it is the non-control of market beta that has prevented factor indices from benefitting fully from the market risk premium.

Do Factor Premia Vary Over Time? A Century of Evidence (AQR Capital Management, 2019)

AQR investigates factor premia over time and across asset clases, and finds significant time variation in single factor returns.

Value is Dead, Long Live Value (OSAM, 2019)

OSAM investigates the extended period of underperformance in the value factor scince 2007, and compares it with the period 1926-1941. They propose that both periods have a connection, largely associated with turning points in the Technological Revolution.

Value vs. Growth: The New Bubble (QMA, Sep 2019)

QMA's paper focuses on the recent underperformance of Value vs Growth, and finds that such extreme periods of underperformance have only occurred twice in the last 30 years. They argue that investors should consider adding a value tilt to portfolios.

Explaining the Demise of Value Investing (Sep 2019)

The authors investigate the more recent underperformance of value investing, but suggest that it may have actually been unprofitable for almost 30 years. Accounting issues, secular economic developments and an element of 'mean-reversion' are perceived to have been contributory issues.

Does "Size" Still Have its Place in Multi-Factor Portfolios? (Scientific Beta, 2019)

In this paper from Scientific Beta they investigate whether removing the Size factor from the range available results in a cost or benefit, and then goes on to consider the consequences of excluding other factors.

Overview: Designing More Defensive Factor Solutions (Scientific Beta, 2019)

Scientific Beta recognises that investors have differing investment objectives and limitations and suggest a range of defensive indices based on low-volatility factor exposure.