Asset Management
Investors Continue To Smile On "Factor-Based Investing" In Volatile Times

The term is sometimes also known as “smart Beta” investing – unpacking drivers of return and then tracking indices that capture the returns of these drivers.
Rising inflation and volatile markets haven’t deterred
institutional and retail investors from using “factor-based”
approaches for securing returns, according to a survey by
Invesco.
The term “factor investing” is about targeting specific drivers
of return across asset classes, such as yield, value, quality and
momentum. Those arguing for this approach say they can deliver
higher portfolio returns and make investments less volatile. The
term is sometimes also known as “smart Beta” investing –
unpacking drivers of return and then tracking indices that
capture the returns of these drivers.
Invesco said respondents to its survey still generally think that
factors are well-suited to managing risk during market
turbulence, with 67 per cent agreeing that factor investing
helped them manage market volatility over the past year. A
similar number, 64 per cent, indicated their faith in factors
having grown over the previous 12 months.
The Invesco Global Factor Investing Study is based on interviews
with 151 institutional and retail factor practitioners managing
over $25.4 trillion in combined assets.
Factor allocations continue to rise, with 41 per cent of
respondents increasing allocations over the past year and 39 per
cent planning an increase in the next year. Only 1 per cent
of respondents decreased allocations to factor over the past
year.
Respondents expect value, low volatility, and quality to be the
best performing factors over the next 12 months. A majority (over
80 per cent) think that their factor allocations have met or
exceeded the performance of their fundamental active strategies,
while 64 per cent indicated that their factor allocations
met or exceeded performance versus market-weighted
strategies.
Among other details, 41 per cent said they rarely (every three to
five years) change their factor definitions – down from 66
per cent in 2021. Some 43 per cent of respondents are changing
their factor definitions frequently (every one to three
years) – up from 16 per cent in 2021.