What is Factor Investing?
Factor investing involves the selection of securities for investment according to particular, pre-identified risk factors.
These factors have been found to explain the risk premiums that traditional fund managers have long sought to exploit. Such factors have been widely researched by academics and, depending on market conditions, have been found on the whole to behave with robust consistency. The low-volatility factor, for example, has been a notable subject of research since the 1970s.
Great success with investors
At the crossroads between the three major types of asset management (discretionary, passive and quantitative), factor investing offers efficient, transparent and systematic exposure to factors which have been found to drive market performance.
Which factors should investors focus on?
For us, there are four main factors which can be used when seeking to gain advantage from risk premiums in equity markets:
Single factor investing
Operating in liquid European or US markets, our seven single-factor ETFs, launched in 2016-2017 enable active managers to be invested in the factors they want to be invested to, and from which they wish to benefit. Due to their intrinsic features, the strategies can be used as tactical allocations, in line with the changes in markets conditions that investors anticipate. For example, at the end of 2016, low-volatility ETF investors switched to a value ETF, to benefit from the rising market.
For investors who wish to combine the features of all equity factors, we created the DEFI (Diversified Equity Factor Investing) funds range. These funds maintain an equal risk allocation to each of the 4 core equity factors, in addition to beta and tracking error controls with respect to market cap indices.
Defensive Multi-Factor investing
Equity Factor Defensive combines a diversified investment into the main factors driving equity returns with a protection overlay.
The fund is a risk-balanced portfolio composed of four core equity factors – momentum, quality, low volatility and value – aiming to provide capital growth by being exposed to a basket of equities and by implementing a systematic options strategy which aims at reducing risk by minimizing volatility.
Market Neutral investing
For the more directional, risk-averse profiles who seek stable returns in various market conditions, we created the DEFI Market Neutral.
The objective of the fund is to increase the value of its assets over the medium term by being exposed to a leveraged long/short dynamic basket of equities and futures listed on worldwide markets or operating on these markets, the components of which, are chosen using a systematic selection-method, based on a fundamental analysis of companies.
It takes a long exposure to the four core equity factors, as well as short positions in regional market indices (S&P 500, EURO STOXX 50 and Nikkei 225). The weights of each exposure are adjusted in order to neutralise the aggregate beta versus the MSCI World Index.