Factor investing – the 30 year view

As Risk & Reward marks its 30th anniversary, we review Invesco’s long history of factor investing research and look to the future through our association with the Consortium on Factor Investing at Cambridge University.

Regular readers of Risk & Reward will know that it features academic papers and perspectives on a broad range of asset classes, regions and investment styles.

In this special anniversary edition, however, we celebrate Invesco’s thirty years of factor investing research. Through articles from each decade, we highlight the continuous progression in the advancement of data-based investing. Our goal is to look beyond the obvious and give our clients unique insights.

The 1990s: Beginnings

• As the pioneers of asset management started to follow quantitative approaches, Invesco was among them.
• A large body of empirical research already existed on the effects of size, volatility and value.
• Academics and practitioners alike observed that stocks with certain characteristics, such as small market capitalization, low volatility or low price/earnings ratios tended to deliver superior returns. It wasn’t long before solid explanations for these observations were brought forward.

The 2000s: Foundations

• Even though the dreaded ‘Millennium Bug’ turned out to be a non-event, the first decade of the new century was nonetheless a time of disillusionment. In early 2000, the dotcom bubble finally burst, though this was at the time perceived as a temporary setback and not realised to be the end of the journey until later.
• The new buzzwords were: risk management, diversification and rationality, and quantitative investment approaches made significant advances.
• This section features six articles from these somewhat sobering years.

The 2010s: Modern factor investing

• Over the last decade, factor investing has really gained prominence.
• And when, in the early 2010s, the subprime crisis gave way to the Greek and euro crises, the concept gained more popularity by meeting investor demand for risk-controlled rationality.
• No longer a niche concept for stocks, today it’s a promising approach for many asset classes.

Download the 30th Anniversary issue of Risk & Reward