Factor investing adoption uptake continues apace in equities & fixed income

Investors employing factor strategies are continuing to increase their factor allocations, the fourth Invesco Global Factor Investing Study has found. The study, the largest of its kind, conducted face-to-face interviews with 241 global institutional and wholesale factor investors responsible for managing over $25trillion in assets.

This year’s study provides deeper insight into the paths of adoption, experiences, methods of implementation, future intentions and challenges to be overcome in factor investing. Nearly half (45 percent) of the investors surveyed in APAC, EMEA and North America increased factor allocations in 2019. Average allocations to factor investing strategies have increased from 2018 to 2019 for both institutional (16 percent to 18 percent) and wholesale (11 percent to 14 percent) investors globally. In EMEA, 59 percent of the respondents plan to increase their allocations over the next three years. Also nearly 70 percent of respondents have also reported that their factor investing performance met or exceeded expectations in 2019.

With factor investing, investors look to improve risk and return expectations for their portfolios by targeting specific performance characteristics of a security. The study found that respondents have continued to increase both the number of factors they target and their usage of multi-factor strategies. They have also taken more active decisions about which factors to include or exclude. One of the results is a reduction in exposure to the value factor (one of the first and most widely adopted factors) and a concurrent increase in the use of other factors such as momentum, quality and low volatility. Despite some questioning whether the value factor remains as effective, it continues to be the factor with the widest level of support among both global wholesale (91%) and institutional investors (86 percent).

Georg Elsaesser, Senior Portfolio Manager, Quantitative Strategies at Invesco said: “The movement of factor investing toward the mainstream continues at pace. Early adopters want to do more with their factor allocations, including active and customized approaches and expanding to fixed income. Existing factor investors have been increasing allocations with over half of the respondents in the study intending to increase allocations over the next three years, this pattern of adoption is likely to continue.”

Zainab Kufaishi (pictured), Invesco’s head of institutional business for the Middle East and Africa said: “We have seen a steady increase in the number of investors in the Middle East turning to factor investing to better manage their portfolios. Reducing risk, enhancing return and reducing costs continue to be the three most important factors driving adoption in the region.’’

‘‘Most investors who have deployed factor strategies have taken a long-term view, though believe that capturing the benefits of factor investing is in part dependent on a dynamic approach to implementation.”

This year’s study found that a 3-to-1 majority of factor investors now choose an active implementation approach as opposed to a passive one – with active strategies executed through segregated mandates, co-mingled mutual funds and exchange traded products (ETPs).

Source from: The Peninsula