Stand United or Divide and Conquer? What is the Best Approach to Factor Investing?

Senior Research Analyst
EMEA Head of Investment Strategy & Research

Factor investing is a style of investing that takes advantage of certain characteristics of securities with the express purpose of driving higher risk-adjusted returns over a market cycle. These characteristics could be macro or fundamental in nature and could include attributes such as Growth, Momentum, Value or Size, among others, which could be used to select securities.

As far as the factor investing process is concerned, single-factor exposure and factor-timing processes are among the most popular approaches. We analyze the pros and cons of both of these approaches and suggest that a multi-factor bottom-up blending process combines the benefits of both and offers the best risk-adjusted returns to investors.