Factor allocations and applications are expanding

Since Invesco first polled investors about factors in 2016, North American respondents have increased their adoption of factor strategies at an average rate of 5% per year. Value continues to be the most commonly utilized style factor.

Bar chart graph showing how factor strategies are used by institutional and wholesale investors.

- Included in Study as Figure 24.

- Sample 123, 137 (style: institutional, wholesale), 41, 44 (macro: institutional, wholesale)

  • For those asset owners who have adopted factor investing, it is no longer an experimental allocation.
  • One way respondents grow their use of factors is by expanding the number of strategies they employ, ultimately implementing from two to four strategies on average.
  • Respondents also add macro factors to style factors, and consider how to extend from equity portfolio applications to fixed income and multi-asset.
Important Information
  • Value Seeks to capture excess returns to stocks that have low prices relative to their fundamental value and higher returns than a benchmark index in the long run
  • Low volatility Describes investments that have demonstrated the lowest volatility compared with securities in the same asset class.
  • Momentum Seeks to capture excess returns to stocks with stronger past performance
  • Quality Quality Seeks to capture excess returns to stocks that are characterized by low debt, profitability, and other ‘quality’ metrics
  • Size Seeks to capture excess returns of smaller firms (by market capitalization) relative to their larger counterparts
  • Dividend yield Seeks to capture excess returns to stocks that have higher-than-average dividend yields
  • Carry Seeks to capture the excess returns from higher-yielding assets relative to lower-yielding assets
  • Market (beta) Seeks to capture excess returns of securities subjected to systematic risk inherent in publicly traded securities
  • Market hedging and currency The use of systematic strategies to more efficiently hedge market and currency risks or to target a currency risk-premia over the long run, typically comprising a multi-factor approach within currency markets
  • Default risk (Credit factor) Seeks to capture excess returns of securities exposed to greater levels of credit risk; generally in bonds that bear risk of downgrade and/or default
Factor investing is an investment strategy in which securities are chosen based on certain characteristics and attributes that may explain differences in returns. 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. Past performance is not a guarantee of future results. Sample and methodology The fieldwork for this study was conducted by NMG Consulting’s (NMG) strategy consulting practice. Invesco chose to engage a specialist independent firm to ensure high quality objective results. Key components of the methodology include:
  • A focus on the key decision makers within institutional investors, asset consultants, and private banks, conducting interviews using experienced consultants and offering market insights
  • In-depth (typically one hour) face-to-face interviews using a structured questionnaire to ensure quantitative as well as qualitative analytics were collected
  • Analysis capturing investment preferences as well as actual investment allocations with a bias toward actual allocations over stated preferences
  • Results interpreted by NMG's strategy team with relevant consulting experience in the global asset management sector
In 2018, the third year of the study, we conducted interviews with 300 different asset consultants, insurers, pension funds, sovereign investors and private banks globally (up from 108 in 2017). In this year's study, all respondents were 'factor users', defined as any respondent investing in a factor product across their entire portfolio. We deliberately targeted a mix of investor profiles across multiple markets. The breakdown of the 2018 interview sample by investor segment and geographic region is displayed in figures 58 and 59. Invesco is not affiliated with NMG Consulting. Survey participants experience may not be representative of others, nor does it guarantee the future performance or success of any product. The opinions expressed are those of NMG and are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. There may be material differences in the investment goals, liquidity needs, and investment horizons of individual and institutional investors.

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