Why Multi-Factor Investing?
Factors are the building blocks of portfolios. Individual factors alone don't always outperform the stock market. Superior performance comes from combining the right factors.
Truly balanced portfolios are not geographic or sector diversified, but rather diversified across factors. AI Multi-Factor combinations mitigate the impact of cyclicality of traditional strategies such as value, momentum, and volatility.
What is it?Captures excess returns of stocks that have low prices relative to their fundamental value
ExampleBook to price, earnings to price, book value, sales, earnings, cash earnings, net profit, dividends, cash flow
What is it?Captures excess returns of stocks that are characterized by low debt, stable earnings growth, and other “quality” metrics.
ExampleROE, earnings stability, dividend growth stability, strength of balance sheet, financial leverage, accounting policies, strength of management, accruals, cash flows
What is it?Reflects excess returns to stocks with stronger past performance
ExampleRelative returns (3-month, 6-month, 12-month sometimes with last month excluded), historical alpha
What is it?A statistical measure of the dispersion of returns for a given security or market index
ExampleStandard deviation (1-yr, 2-yrs, 3-yrs), downside standard deviation, standard deviation of idiosyncratic returns, Beta
What is it?Captures excess returns of smaller firms (by market capitalization) relative to their larger counterparts
ExampleMarket capitalization (full or free float)