Invesco: Factor investing on the rise

Asset managers are committing more resources to factor investing according to research from asset manager Invesco.

Exactly half of institutional investors and a third (33%) of wholesale investors have added factor expertise to their investment teams, states Invesco, while 64% intend to increase their factor allocations over the next three years.

The research, which surveyed over 300 investors in 21 countries with a collective €16.55 trillion in assets under management, cites better net performance, cost-effectiveness and risk reduction as the three primary reasons for the increase in allocations.

Meanwhile funding for factor allocations is coming from a combination of new cashflow and existing active and passive allocations.

The research also shows that there has been a falling away of barriers and a growing investor confidence in factor investing, also known as systematic investing, smart beta and active quant strategy. These barriers include belief in the factor theory, support from the executive and internal stakeholders, and internal capability.

The research also revealed that style factors continue to be the most widely used factors and, within this category, value remains the most popular (78%) of factor investments, followed by low volatility (62%).

“Factor investing’s progress is forcing a structural change within the industry, creating a true third pillar in the investment world, distinct from traditional active and market cap weighted passive,” said Georg Elsaesser, senior portfolio manager, quantitative strategies at Invesco.

“Investors – both wholesale and institutional – see factor investing as a distinct competency requiring specific rather than generalist expertise from elsewhere in the internal team.”

©2018 funds europe

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