By
Borsgade
Cliff Asness and a number of his colleagues from AQR have published a short and practical article in which they analyse the opportunities and challenges of investing based on quantitative factors.
And what is factor investing in their view? They define the concept as follows: “Factor investing is an investment strategy that chooses securities based on factors associated with higher returns, lower risk, or both. There are many types of factors, including style (growth, value), size (large cap, small cap), risk (volatility, momentum), and fundamental (profitability, dividends).”
The conclusion about factor investing is clear: It is absolutely possible to use the strategy and get a return that is higher than the market. But at the same time, it is a difficult strategy to follow in practice and that is precisely why it continues to work:
Many investors will […] either face too many financial pressures to maintain a factor strategy, or, more likely, will become too frustrated and abandon factors. Still, for investors who are able to stick with factors, the challenges they bring also offer the promise of premiums in the long term. In fact, the drawbacks are precisely what prevent overcrowding and make factor investing profitable for those who choose to pursue it.
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The above has been prepared by Børsgade ApS for information purposes and cannot be regarded as a solicitation or recommendation to buy or sell any security. Nor can the information etc. be regarded as recommendations or advice of a legal, accounting or tax nature. Børsgade cannot be held liable for losses caused by customers’/users’ actions – or lack thereof – based on the information in the above. We have made every effort to ensure that the information in the above is complete and accurate, but cannot guarantee this and accept no liability for errors or omissions.
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