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Research Insight - Employing Systematic Equity Strategies - June 2013

In this Research Insight, we introduce “Systematic Equity Strategies” (SES), which refers to a rules-based implementation of investment strategies and anomalies.  Our research finds that SES, when used as factors in risk models, can help predict both expected and abnormal stock returns, thus improving forecast accuracy. Some Systematic Equity Strategies may lead to crowding risk as large pools of capital pursue shared strategies; by using SES factors, investors can monitor their exposures and predict crowding risk. Incorporating SES factors in risk models can help investors diagnose the sensitivity of their portfolios to potentially crowded investment trends, helping users make better trade-off decisions between risk and return.