Investors are putting aside broader investments in sectors and industries in favor of more targeted approaches, reports the annual Global Factor Investing Study by Invesco.
The study found that factor investing was on the rise in lots of investment areas, and while it was a good complement for active portfolios, active still had advantages over the algorithm-driven investment approach.
Investors are seeking out certain factors such as momentum or value in how they are allocating their money; over three quarters of those surveyed are now using multifactor strategies, with 41% reporting that they anticipated being more dynamic within the next two years, according to Institutional Investor.
“It’s an evolution of sectors and Morningstar style boxes,” said Mo Haghbin, chief commercial officer and COO of Invesco. “Factors are a more precise way of targeting parts of the markets — a more precise way of thinking about sectors like technology.”
The results of the survey are being driven by the desire of investors to have targeted access to markets, through a portfolio that combines using traditional active management funds and factor strategy ones, believes Haghbin.
The survey was done by Invesco in partnership with an outside firm and included 241 insurers, sovereign investors, pension funds, asset consultants, private banks, and wealth managers globally with a collective $31 trillion in AUM.
“Respondents saw factor strategies as generally on par with active management in exploiting sources of alpha including risk premiums, behavioral rationales and market structures,” the report stated. However, it did find that “active is still seen as having some advantage over risk management.”
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