Pursue investment outcomes with factors

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

The ideas behind factors aren’t new. But their use is being enhanced by data and technology.

What are factors?

Factors are the foundation of portfolios—the broad, persistent forces that have driven returns of stocks, bonds and other assets.

Factor investing leverages advancements in today’s data and technology to deliberately seek these historical return drivers in portfolios. Understanding how factors work can help you capture their potential for excess return and reduced risk, just as leading institutional investors and active fund managers have done for decades.

There can be no assurance that performance will be enhanced or risk will be reduced for funds that seek to provide exposure to certain quantitative investment characteristics ("factors"). Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods. In such circumstances, a fund may seek to maintain exposure to the targeted investment factors and not adjust to target different factors, which could result in losses.

Types of factors

There are two main types of factors that have driven returns: macroeconomic factors, which capture broad risks across asset classes; and style factors, which help to explain returns and risk within asset classes.

Hover over each factor to learn more.

Factor Investing: Outer image
Factor Investing: Inner image

VALUE

Stocks discounted relative to their fundamentals

ECONOMIC GROWTH

Exposure to the business cycle

MINIMUM VOLATILITY

Stable, lower-risk stocks

MOMENTUM

Stocks with upward price trends

QUALITY

Financially healthy companies

SIZE

Smaller, high-growth companies

CARRY

Income incentive to hold riskier securities

REAL RATES

The risk of interest rate movements

INFLATION

Exposure to changes in prices

CREDIT

Default risk from lending to companies

EMERGING MARKETS

Political and sovereign risks

LIQUIDITY

Holding illiquid assets

Value
Momentum
Minimum Volatility
Quality
Size
Carry
Economic Growth
Real Rates
Inflation
Credit
Emerging Markets
Liquidity
STYLE
Value
VALUE
Stocks discounted relative to their fundamentals
Momentum
MOMENTUM
Stocks with upward price trends
Quality
QUALITY
Financially healthy companies
Minimum Volatility
MINIMUM VOLATILITY
Stable, lower-risk stocks
Size
SIZE
Smaller, high-growth companies
Carry
CARRY
Income incentive to hold riskier securities
MACROECONOMIC
Economic Growth
ECONOMIC GROWTH
Exposure to the business cycle
Real Rates
REAL RATES
The risk of interest rate movements
Inflation
INFLATION
Exposure to changes in prices
Credit
CREDIT
Default risk from lending to companies
Emerging Markets
EMERGING MARKETS
Political and sovereign risks
Liquidity
LIQUIDITY
Holding illiquid assets

Factors have generally had low correlations with each other and therefore tended to perform well at different parts of the economic cycle.1 Use our interactive tool to see how different factors have performed through market shocks, expansions and contractions over the long term.

1. Source: MSCI. Focus: Momentum – Factor Investing

 


Why invest in factors

Institutional investors and active managers have been using factors to manage portfolios for decades. Today, data and technology have democratised factor investing to give all investors access to these historically persistent drivers of return.

Differentiating your offering: how could smart beta help?

Over the past few decades most investors could only access these rewarded characteristics, or factors, through actively managed strategies. Smart beta now provides investors with the ability to access these factors through a cost-efficient and transparent ETF.

Learn more

-Andrew Ang, Ph.D. Head of Factor-Based Strategies
Factor investing is the way of the future. It’s about empowering investors to deliberately and directly access ideas to help achieve their financial goals.
Read Andrew's Angle on factor tilting Read Andrew's Angle on factor tilting