Retail investor, North AmericaWhile we cannot predict geopolitical events, we want to understand what the factor sensitivity is to those events and use that to predict how the portfolio is going to perform. Factors are becoming more important because we want more granularity and better tools to understand how different factors react in different scenarios.
In our first theme, we focus on the performance of factors during recent market volatility and the impact that this had on investor sentiment. We find for many the volatile environment has demonstrated the strengths of a factor approach, with factor exposures now seen as fundamental in understanding the relative performance of portfolios.
In theme 2, we look at the intersection of factor investing and Environmental, Social and Governance (ESG). Factors are now seen as an important tool for maintaining performance when adopting ESG, for example by controlling for unwanted bias resulting from ESG integration.
In our third theme, we examine how and where factor investing is being used within fixed income. The application of factors within fixed income is nearly universal, and we find the potential end of the fixed income bull market has led to accelerating levels of demand for a factor approach. In particular, factors are seen helping to manage volatility and as an aid in delivering more diversified sources of return potential.
In our fourth theme, we explore approaches to implementation and find four-fifths of factor investors now adjust factor weights through time. This is driven by the varying performance of different factors over the economic cycle and desire to balance out exposures across the portfolio. We note many investors are using factor products both tactically and strategically and this differentiation plays an important role in product selection.
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.
Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.
