Implementing factor investing with ETFs

Monday 04 September 2017

Expertise

Investors are increasingly looking for a new approach to equity investing to make the most of available risk premia and to minimise the impact of market volatility on the value of a portfolio. Smart Beta solutions can answer these needs, as they provide improved diversification compared with market capitalization-weighted indices by addressing many of their limitations. These products aim to help investors reduce volatility and access potentially better returns as well as mitigate losses in bear markets.

Academic research has shown stocks with specific characteristics can have consistent and persistent risk premia, which are known as investment factors. Well-known factors include value, size, momentum, minimum volatility, dividend and quality.

 

Constructing a portfolio which tilts towards these investment factors can improve performance compared to market-cap weighted indices because it allows investors to capture additional returns. As well as capturing the equity risk premium, they will also capture the additional risk premia associated with these investment factors.

In this paper,  Amundi experts  take a look at the different strategies investors can implement with this Smart Beta approach.

  


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