As with all things new, factor investing in China holds a special appeal. There is abundant opportunity, but there are also notable differences compared to the investment world as we know it. In particular, given the historically rapid pace of change in China, the past may be a less reliable guide to the future than elsewhere. In this issue of Risk & Reward, three of my colleagues describe how they navigate the shifting Chinese investment landscape and show that factor strategies can be effective even when there are structural breaks in the data.
Other articles in this issue address fixed income investing in times of low market yields, real estate sector investing, the merits of estimating the covariance matrix and how to capture multi-asset class factor premia.
Given the complex dynamics of a post-COVID world, we know investors have questions. Can factor strategies help fixed income investors who are seeking higher yields? Which specialty real estate sectors still hold promise when the world as we know it has changed dramatically? Is it worthwhile to forecast covariance – or are old-fashioned return forecasts sufficient? How can retirement savers benefit from a multi-asset class factor approach? This new edition of Risk & Reward offers some answers.
Factor investing in China: abundant opportunity, but beware of structural breaks
To avoid overfitting a model based on historical data, it is important to understand how policy affects market behavior. We describe important regulatory changes in the Chinese A-shares market over the past decades, analyze the impact of these changes on market efficiency and investigate the relevance of past data – and what it all means for factor investing strategies.
Creative solutions to common problems in fixed income portfolios
We’ve developed proprietary tools to support the next generation of fixed income analytics. In three case studies, we show how they can be applied to benefit investor portfolios.
The allure of specialty sectors in real estate investing
After the corona shock of 2020, it may make sense for investors to reconsider specialty property sectors – for a more tailored approach to the post-Covid world.
Forecasting the covariance matrix: is it worthwhile?
Our analysis suggests that more effort should be expended on forecasting returns than on estimating the covariance matrix.
A strategic asset allocation perspective on multi-asset class factor premia: A preview
We examine how multi-asset class factor overlays can help investors meet specific objectives, notably long-term wealth accumulation and decumulation.
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The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Data as at 31.12.2020, unless otherwise stated.
This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.
Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals, they are subject to change without notice and are not to be construed as investment advice.
