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.
Our approach to Factor Investing
We consider six factors which have been widely documented: four core factors, that are dependent on the economic environment and that combined together can reconstruct a similar but enhanced exposure to the market and two additional factors that exhibit differentiating patterns that make them useful in a factor selection process, completing our core offer.
A broad offer to meet client needs
Single factor investing
Operating in liquid European or US markets, our seven single-factor ETFs, launched in 2016, 2017 and 2021, enable more active managers to be invested in the factors they want to be exposed to and from which they wish to benefit.
From 2021, ESG considerations were included into the stocks selection process to align our ETFs offering with BNP Paribas’ commitment for a wide range of sustainable products and investors’ portfolio objectives. A good ESG rating is an indicator that a company is able to adapt and plan ahead, which may translate into potential improvement of returns.
For investors who wish to combine the features of all equity factors, we created the DEFI (Diversified Equity Factor Investing) fund range. These funds maintain an equal risk allocation to each of the four core factors, in addition to beta and tracking error controls with respect to market cap indices. The DEFI fund range is available in European, US and World versions.
Defensive multi factor investing
For investors aiming to invest in equities but requiring a more defensive approach, we created the Multi-Factor Defensive strategy. It takes a long exposure to our multi factor equity portfolios and adds protection from an option overlay. It aims to provide up to 70% of the European/US equity upside potential while almost halving the risk making it particularly attractive under the Solvency II framework. Two versions are available in a fund format: European and US.
Market neutral investing
For the more directional, risk-averse profiles who seek stable returns in various market conditions, we created the DEFI Market Neutral. This fund 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.