In recent years, interest in factor-based investing has increased meaningfully as market participants seek precise and systematic solutions to achieve their investment objectives.
Factor investing is often viewed as the third pillar of investing alongside active and passive but it is also described as an alternative way of looking at the market. We believe factor investing has the potential to drive outperformance supporting a better risk-adjusted trade-off within a truly diversified portfolio.
Unlike traditional stock picking, this style of investing builds on exposures to particular traits, called factors, that exhibit superior returns relative to a broad market-capitalisation weighted index benchmark. A factor can be thought of as a quantifiable characteristic of a financial asset which to a large part explains the return and risk characteristics of a portfolio.