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Index | Factor Investing
Factor Performance Can Be Timed and Exploited, Study Finds Factor Performance Can Be Timed and Exploited, Study Finds
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.
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.
Volatility returned to markets in February, whiplashing investors accustomed to a long stretch of solid and stable returns, and causing the worst monthly performance in two years for global equities.
Last year, net inflows into so-called smart beta exchange-traded funds (ETFs) and products (ETPs) worldwide rose 33.2% from $54 billion in 2016 to $72 billion, according to ETFGI.