Tag Archives: factors

Understanding the Value Spectrum

Value investing, made famous by Benjamin Graham in his book Intelligent Investor nearly 70 years ago, is possibly the most well-known investment strategy.  Although the strategy may appear simple at first glance—buying securities with prices that are trading at discount multiples than their fundamental values—it can be tricky to implement.  For example, value can be Read more […]

The Much-Maligned Market Portfolio

It seems generally acknowledged that no investment strategy should be expected to offer an optimal trade-off between return and risk in all periods.  Yet I often hear criticism of market-cap weighting, presumably because modern portfolio theory (MPT) postulates a hypothetical market portfolio as efficient in the mean-variance sense.  Financial engineers, product developers, and asset managers Read more […]

Multiple Paths to Multiple Factor Indexing

Single factor “smart beta” indicized strategies that were once exclusive to the realm of active management.   Multifactor indexing is beginning to garner much interest as the newest chapter of index innovation. It’s a natural conjecture that if single factors are successful, combining more than one factor should prove even more beneficial.   While any combination of Read more […]

The S&P GIVI Japan Posts Impressive Five-Year Live Track Record

The S&P GIVI (Global Intrinsic Value Index) Japan posted an impressive five-year live track record.  It is one of the few multi-factor indices in the market, and it was launched five years ago.  Since its launch in March 2012, the S&P GIVI Japan has outperformed its benchmark, the S&P Japan BMI, by 1.17% per year, Read more […]

Q&A: What is factor investing?

We recently hosted Tim Edwards, Senior Director, Index Investment Strategy at S&P Dow Jones Indices, for an in-depth discussion about factor-based investing and the role it can play in a diversified portfolio. Chris: What is factor investing? What are the factors? Tim: To be a factor, two things in particular need to be true. The Read more […]

Avoiding Beta Pollution in the Search for Value

In our latest S&P 500® Factor Indices Dashboard, Tim Edwards wrote, “Value’s return to form came after a decade of meagre pickings.  In fact, value recorded in its best annual relative performance since 2000.” Small wonder then that the S&P 500 Enhanced Value Index and S&P 500 Pure Value were popular topics of financial advisor Read more […]

Multi-Factor Indexes: More Bang for Your Buck

Many advisors are unsure whether introducing factor-tilt ‘smart beta’ strategies into portfolios will improve client outcomes. In fact, some factor tilt portfolios appear to provide the equivalent of levered exposures to a diverse set of alternative risk premia. This is because factor tilt portfolios may contain much greater than 100% exposure to several risk factors Read more […]

Using Factor Analysis to Explain the Performance of Dividend Strategies

Factor tilts have resulted in divergent dividend strategy performance following the November elections November’s US elections have buoyed investor optimism about the potential for tax reform, increased infrastructure spending, reduced regulation and accelerating economic growth. These expectations led to a 0.75% spike in the 10-year Treasury yield between Nov. 8 and Dec. 16, and a Read more […]

A New Metric for Smart Beta: The Cost-Adjusted Factor Efficiency Ratio

With an increasing number of smart beta strategies that track the same factor in the marketplace, it is more important than ever to understand the underlying drivers of risk and return of these strategies, which can vary greatly.  This is because the underlying portfolio construction of these strategies determines risk and return and, ultimately, the Read more […]

Visualizing Factor Exposures

Measuring the away-from-benchmark exposures of active portfolios (or “smart beta” indices) is not inherently complicated.  To what degree, for example, is a portfolio cheaper than its benchmark, or more tilted toward high quality stocks?  Practitioners typically approach the question in one of several ways: Calculating weighted average differences – e.g., the yield on my portfolio is Read more […]