Insight

Leveling up factor performance: a multidimensional approach

7 February 2024
invesco
Invesco
Multidimensional
Key takeaways
Compensated & uncompensated factor risks
1

Dedicated factor investors would be unwise to disregard the uncompensated risks that come along with standard factor investing approaches.

Diversified signals improve performance
2

Our examples show that a multidimensional approach is better than relying solely on a common signal with high conviction.

Enhanced factor portfolio benefits
3

The enhanced factor portfolio comes with higher returns, significantly lower risk, significantly higher IR and significantly smaller drawdowns.

Factor investing has revolutionised the way investors construct their portfolios – through a simple, transparent, rules-based approach that relies on factors to manage key drivers of risks and returns. But naive implementation of factor strategies may prevent investors from unleashing a factor’s full potential.

We show how investors can potentially improve factor premiums by diversifying across signals and removing exposures to unrewarded risks.

Download the paper

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