(MENAFN- ValueWalk) Executive Summary
- Factor investing promises outperformance at low cost. But to add value in a portfolio, it must deliver positive risk-adjusted returns and with low correlation to existing holdings.
- Historically, pure factor exposures have earned similar risk-adjusted returns to buying and holding plain vanilla asset classes like stocks and bonds. Therefore, factors such as Value and Momentum should only be valuable in a portfolio if they are diversifying to these asset classes.
- Most factors are not uniquely diversifying in a portfolio. Many have a bias to perform best at the same time as bonds or commodities, like low volatility and momentum strategies.
- Instead of using factors in a portfolio, leveraging plain vanilla asset class exposure delivers the same portfolio improvements more reliably.
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