Factor investing: the third pillar of investing

Article | 12 July 2018 | Kristina Hooper, Chief Global Market Strategist, Invesco Ltd

 

Kristina Hooper, Chief Global Market Strategist, Invesco, introduces the latest research and articles featured in the new issue of Risk & Reward.

In the latest edition of Risk & Reward we compare factor investing to traditional active and passive approaches and look to clarify where and how factor investing fits into the investment landscape.

Factor investing: the third pillar of investing alongside active and passive

Factor investing is emerging as a third pillar of investing alongside traditional alpha strategies and market cap-weighted indexing. Distinguishing between the three investment options with clarity and purpose, we can understand how they differ so that investors can make more informed decisions.

"It's time to take a step back and clarify where and how factor investing fits into the investment landscape"

Invesco's Stephen Quance, Director of Factor Investing, shares insights from his daily contact with investors trying to make up their minds and decide between active, passive and factor investing.

Four years on: Modi lays down building blocks for growth in India

Four years after Narendra Modi became Prime Minister of India, there are good reasons to be optimistic about his reform programme. We have identified six key areas of significant positive change.

Currency carry strategies: unconventional weightings may improve performance and diversification

As the popularity of factor investing increases, more investors have focused on the currency carry factor as a means of generating returns. Developed market carry portfolios are often diversified using emerging market currencies. But how can this fairly simple approach be optimised?

A scientific approach to avoiding data mining pitfalls

Exponential growth in data and computing power has given rise to an argument that we no longer need to understand the ‘why’ of the data. We question this view and argue for a more traditional scientific approach to investment management.

Evaluating risk mitigation strategies

In light of the sustained low yield environment, investors have increasingly taken on more risk to meet their return targets. Yet, their ability to cope with higher risk is limited, which is what makes strict risk management and suitable portfolio insurance techniques so important.

Performance attribution through a factor lens

Investors not only want to understand which factors their portfolio is exposed to, but also the resulting contributions to performance and risk. We address an important technical issue that arises in the performance attribution analysis of factor strategies subject to investment restrictions.

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Important information

Data as at 31 May 2018, unless otherwise stated.

Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.

This webpage is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.

Kristina Hooper

Kristina Hooper

Chief Global Market Strategist, Invesco Ltd