Invesco Global Systematic Investing Study 2023

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Welcome to Invesco’s Global Systematic Investing Study 2023

This year, we’ve refreshed the title of the annual factor investing study, to the Global Systematic Investing Study, reflecting the progression of quantitative investing over the past 7 years. Based on interviews with 130 systematic investors, defined as investors that employ structured, rules-based quantitative models and algorithms to make investment decisions, this research collects the opinions of senior decision makers responsible for managing US $22.5 trillion in assets (as of March 31, 2023).

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Highlights from the study’s four key themes

Theme 1

Theme 2

Theme 3

Theme 4

Theme 1

The first theme highlights how systematic investors are broadening their toolkits. Looking beyond factor investing, they are deploying a broader range of quantitative strategies to decode and target performance drivers across market cycles. In a world of heightened volatility, these techniques are not only helping shield investors, but are used to identify and capitalize on new opportunities emerging from a shifting macro backdrop.

theme1
Risks suited to a systematic approach, % citations

Which of the following are well addressed via a systematic approach? Sample size: 122.

Theme 2

Theme two highlights a notable shift in systematic portfolio construction. Investors are increasingly diversifying factor exposures over time, adjusting for macroeconomic forecasts and desired portfolio balances. The study reveals a growing acceptance of ‘growth’ as a bona fide investment factor, challenging traditional views. Additionally, ETFs have surged in prominence, becoming a key tool for systematic investors due to their versatility in hedging and dynamic portfolio management.

theme2
Why adjust factors through time, % citations

Why do you adjust your factor weights through time? Sample size: 96. 

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Theme 3

Theme three chronicles the rising adoption of artificial intelligence (AI). The Study finds half of respondents are already utilizing these technologies in their investment process. Investors believe AI will be transformational in the next decade, citing advantages for risk management, efficiency, and alpha generation but with challenges to be overcome, including complexity and cost.

theme3
Use of AI in investment process, % citations

Do you incorporate AI into your investment process? Sample size: 130. 

Theme 4

In theme 4, we find systematic strategies are aiding ESG investors in managing more complex demands, offering improved risk management and performance potential, and overcoming data constraints. Looking ahead, AI is expected to increasingly play a central role, with 50% expecting to use it for ESG integration, a significant leap from 17%. AI helps in developing proprietary ESG metrics and expand integration across new asset classes.

theme1
Reasons for incorporating ESG, % citations

Why do you incorporate ESG? Sample size: 120.

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  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

     

    Factor investing (as known as smart beta or active quant) is an investment strategy in which securities are chosen based on certain characteristics and attributes that may explain differences in returns. Factor investing represents an alternative and selection index-based methodology that seeks to outperform a benchmark or reduce portfolio risk, both in active or passive vehicles. There can be no assurance that performance will be enhanced or risk will be reduced for strategies that seek to provide exposure to certain factors. Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods. Factor investing may underperform cap-weighted benchmarks and increase portfolio risk. There is no assurance that the investment strategies discussed in this material will achieve their investment objectives.

     

    Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.

     

    In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

     

    The use of environmental, social and governance factors to exclude certain investments for non-financial reasons may limit market opportunities available to funds not using these criteria. Further, information used to evaluate environmental, social and governance factors may not be readily available, complete or accurate, which could negatively impact the ability to apply environmental, social and governance standards.

     

    There are risks involved with investing in ETFs, including possible loss of money. Index-based ETFs are not actively managed. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Both index-based and actively managed ETFs are subject to risks similar to stocks, including those related to short selling and margin maintenance.