THE ROLE OF FACTOR RETURNS
Investors have significantly improved their understanding of portfolio returns over time. First was the separation of beta and alpha, i.e. the difference between market and manager returns. Then there was a further differentiation of country and sector beta within market beta. More recently investors started to make the distinction between manager alpha and factor returns, which are also called alternative risk or style premia.
Manager alpha is the holy grail, but difficult to identify and there is little empirical evidence that manager alpha is consistent across time. Like the holy grail, this might not be worth pursuing.
Some factors have strong empirical support and shown to exist in countries and sectors across market cycles. Factors returns can usually be explained by either capturing a risk premium like in Value or market behavioural biases like in Momentum.
Naturally active investing is a zero-sum game and the total alpha is zero or negative after costs. Conscious factor investing may increase the chances of being a successful active manager, given that some factors have shown strong persistence of positive alpha. However, factor selection and factor timing remain challenging topics in portfolio management.
ANALYSIS OF PORTFOLIO RETURNS OVER TIME
THE RISE OF FACTOR PRODUCTS
EVOLUTION OF THE INVESTMENT INDUSTRY
It’s our view that the trend to hold market beta via ETFs will continue. In addition, we believe that factor products, either smart beta or systematic long/short products, will grow significantly as they tend to be transparent, cost-efficient, and easy to implement in portfolio management.
Equity portfolios are likely to be dominated by passive instruments in the near future. Active managers will face more competition from factor products such as smart beta, but also have the opportunity to exploit relatively simple rule-based investment strategies.
WE PROVIDE QUANTITATIVE SOLUTIONS FOR FACTOR INVESTING
We are a dedicated team focused on quantitative research, data, and products in the factor investing space. Specifically we focus on factors, which are also called alternative risk premia or style premia, in developed equity markets globally. We are as much a technology as a financial services company.
As a firm we have a core set of principles, which we hold ourselves to each day:
- Client focus: We are always at your service
- Integrity: Being honest, transparent and consistent in our actions
- Continuous self-improvement: We aim at operational excellence, nothing less
- Challenging convention: We challenge our own knowledge and the status quo each day