What’s Your Factor Footprint?

categories: Indexes, Americas, EMEAI, Factor and Risk Modeling, Investing (Investment Management), Portfolio Construction and Optimization, Asia Pacific, Asset Owners, Hedge Funds, Equities, Research Paper, Asset Managers (Quant or Fundamental), ALIGHANBARI Mehdi, DOOLE Stuart

As the more alarmist discussion of factor meltdowns due to crowding has dissipated, institutional investors have turned toward understanding the investment capacity of factor-based strategies. The key question is to gauge how much capital can be invested in funds that replicate factor indexes before their return expectations diminish to unattractive levels. In this Research Insight, we use characteristics of factor indexes to gauge their capacity, using the MSCI Minimum Volatility Index as a case study. Our analysis suggests practical ways that factor investors can modify their strategies to reduce their factor footprint, without affecting their ability to capture the desired factor exposure.

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