How to define a factor? It’s a challenge for asset owners and wealth managers in evaluating how well factor products meet investment objectives. We found an improved and more robust measure can be formed by combining multiple descriptors. 

When COVID-19 first swept through global equity markets, many factors exhibited unprecedented performance swings. How could institutional investors interpret the industry-momentum factor’s moves in the context of the underlying market dynamics?

Growth has sometimes been viewed as the opposite of value. By extending the concept of growth at a reasonable price, we were able to capture the growth premium without it being lost to unintended factor exposures.

We examine considerations when constructing single-factor portfolios: starting from a security universe with fixed target-market-cap coverage or fixed number of securities; assessing factor exposure on single or multiple factor descriptors: choosing how broad a subset to use from the underlying universe; and determining the pros and cons of different portfolio-weighting schemes.

COVID-19 has had a profound impact on how companies manage cash flows and liquidity. Bond investors face the possibility of increased leverage, rating downgrades and defaults. Can factors and ESG metrics shed light on these risks?

It’s clear that some companies were better positioned to take advantage of a remote work environment than others. We built a hypothetical “remote-operation capacity” factor to seek to measure the effect on different firms.

COVID-19 disrupted operating models for many businesses, forcing a shift to remote working, digitization and low-contact services, which we term “Remote Operation Capability” (ROC). Using machine learning and natural language processing techniques we built a potential ROC factor that looks at the extent to which a company was able to thrive in this environment.

As markets rallied worldwide, investors took on high-beta exposure and rotated away from stocks with lower risk. The latest edition of Factors in Focus explores the details.