Factor Investing

Qontigo has launched the STOXX Factor Index suite, bringing together the powerful indexing and analytics capabilities of Qontigo.

The STOXX Factor Index suite is comprised of five single-factor indices and a multifactor index engineered to deliver the excess returns associated with each factor using a diversified index of securities with carefully managed exposure, liquidity and risk characteristics.

October’s market pullback is the type of seismic event that initiates discussions about a change in investor sentiment. In the current rally, such a change would mean a move away from the recent years’ leaders, namely growth stocks, towards the laggards: value stocks. 

The STOXX® Minimum Variance Indices are designed to achieve the lowest return volatility in a given investable universe.

In this paper, we take a look at how minimum variance performed vis-à-vis its core market counterpart during nine recent geopolitical risk events. The nature of these events is that they tend to push correlations towards 1.0.

In the asset management world, the terms ‘value’ and ‘growth’ have long been used to describe two distinct investment styles, and many managers categorize themselves and their products along these two labels.

After rising in tandem with other investment styles for most of 2019, value stocks — those trading at below-average valuations — have since May slipped back to the bottom, adding to their multi-year lagging record.   

Minimum-variance strategies – which aim to reduce swings in portfolio prices and typically consider both share-price volatility and intra-stock correlation – have gained much traction since the global financial crisis. 

Minimum variance strategies have gained significant traction especially since the global financial crisis. They aim at reducing or minimizing variance, i.e. the square of volatility as measured by standard deviation, or, in this case, price fluctuations of portfolio prices around their mean.

A recent report by State Street Global Advisors examined this behavior, which refers to low-volatility stocks’ long-run outperformance even if they take on less risk — i.e. have lower beta — than the broader market.

The growing popularity of smart-beta products has fueled the debate around whether their advantages and potential performance can prevail across different market environments. 

A new and intriguing offshoot of the active vs passive debate is emerging. As factor index investing continues to expand the choices available to investors, is it still a truly passive strategy, or is it active?