Research Insight - Multi-Factor Indexes Made Simple - November 2014
categories: Indexes, Americas, EMEAI, Factor and Risk Modeling, Investing (Investment Management), Portfolio Construction and Optimization, Asia Pacific, Asset Owners, Equities, Research Paper, CHIA Chin-Ping, Asset Managers (Quant or Fundamental), ALIGHANBARI Mehdi
Multi-factor index fund allocations are increasingly becoming the preferred approach to factor investing. In this paper, we examine the return/risk characteristics of nine static and dynamic weighting strategies over a 36-year period. The results highlight that a simple strategy that equal weights multiple factor indexes has historically proved more effective than many of the more complex approaches - pointing to its potential as a way to combine factors, especially in the absence of active investment views and skills. However, a dynamic factor weighting strategy based on fundamental signals also has merit if the investor believes she has the insight or skills required.