Factor Investing

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?

Investment factors such as size or value have a ‘robust’ momentum profile that allows investors to time their future performance based on recent returns, according to a study1 published by researchers at AQR Capital Management LLC.

Ever since the onset of the financial crisis in 2008, volatility has become a critical aspect for investors to consider in their portfolios.

Ever since the onset of the financial crisis in 2008, volatility has become a critical aspect for investors to consider, measure and position in their portfolios.

When it comes to evaluating the success of equity portfolios or constructing a traditional passive investment strategy, the go-to instrument has usually been the market capitalization-weighted index.

Following years of a debate centered on the arguments in favor and against the two investment styles, more professional asset managers and asset allocators are combining passive and active funds to access markets and strategies efficiently.

Strong balance sheets, established businesses, higher return-on-equity and superior profitability.

The size factor’s risk premium is among the most well-documented, and investing in small-cap companies has yielded consistent results over recent years.

A recent report by Research Affiliates1 states that while momentum is one of the most compelling risk premia factors, there is a significant performance gap between theoretical and live results, with the latter proving considerably weaker.