The asset manager for a changing world
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Factor investing

 

With a recognised expertise (11bn Euros in this field) and a long investment experience of the teams (since 2008), our "Factor Investing" approach is based on years of academic research and is increasingly successful with investors.

Key points

  • Factor investing selects stocks or bonds based on criteria that have demonstrated their ability to create stable and sustainable value over a long period
  • Quantitative models developed allow us to build portfolios by selecting securities according to four factors or styles based on business fundamentals (Quality & Value) and empirical evidence (Low Volatility & Momentum)
  • By its systematic and transparent approach, it also helps to overcome cognitive biases, towards a more rational approach of investment, and ultimately better control of risk and performance

Like it or not, our decision making often includes some irrationality. This results in particular from the important role of emotions in the way we perceive our environment and of which we evaluate the different possible scenarios. However, this mode of emotional decision – some would say intuitive – can also mislead us in certain situations by moving away from pure logic.

The cognitive sciences have looked into this phenomenon and have identified some of our characteristic reactions, which we away from ‘rational’ logic: cognitive biases.

The existence of these biases directly influences the way we think and make choices. This is especially the case when we make investment decisions.

 

Factors, towards a more rational approach to investment

To overcome these biases, purely systematic management approaches have been developed. They are based on the use of quantitative models to build portfolios by selecting stocks according to different factors. These factors correspond to criteria, such as volatility or financial data, which allow the selection of securities and whose academic research has shown that they offer a better risk-return profile than traditional indices. We are talking about factorial investment or factor investing.

These factors are similar to the large “investment styles” of the discretionary managers, but the use of a systematic methodology makes it possible, on the one hand, to eliminate the subjectivity component inherent in human analyzes, and on the other hand to efficient and homogeneous way of investment universes of several hundreds, even thousands of titles.

Finally, the 4 factors we chose to use are associated with explicable concepts, justified by an economic rational and complementary: Quality, Value, Low-Risk, Momentum.

 

Factor investing: a new approach to portfolio management

Smart beta, and in particular factor investing, is positioned at the crossroads of three major types of management:

  • Index management for using predefined and transparent construction rules
  • Discretionary management, by looking for long-term vectors of performance and factors justified by economic logic
  • Quantitative management, of which the techniques used offer several advantages:
  • An objectivity of investment decisions
  • The possibility of historically evaluating the behavior of factors
  • The ability to operate in broad investment universes
  • And the possibility of finely calibrating the risk

This factor approach is increasingly popular with investors as it provides efficient, transparent and systematic exposure to the factors that drive market performance.

The value of investments and the income they generate may rise as well as fall, and investors may not recover their initial investment.

 

Our Factor Investing strategies

Low Volatility

Guru™

DEFI

Low volatility or low volatility approach focuses on one factor – the low volatility factor – for stock selection. This factor is based on the counter-intuitive finding that risk-taking in equity investments is not rewarding and that a selection of the least risky securities tends to offer a better risk-return ratio over the long term. This strategy aims to reduce portfolio volatility (risk) and to limit the impact of market declines while benefiting from upward periods. The GURU™ strategy is defined as a fundamental approach with strong conviction, based on three factors: quality, value and momentum. This investment methodology is inspired by the techniques used by famous asset managers for almost a century (Benjamin Graham, Warren Buffet, Peter Lynch …), hence the name Guru™. The selection of securities is done according to a best-in-class method, which consists of classifying securities according to the three factors and selecting those with the highest overall score. The Diversified Equity Factor Investing (DEFI) approach is a multifactorial approach based on four key equity market factors: quality, valuation, low volatility and momentum. The peculiarity of this approach is to offer a balanced exposure to the factors by maintaining an equal risk budget on each of the 4 factors and to be able to finely control the main risk parameters – the beta and the tracking error – of the portfolio.

Factor investing is thus a particularly efficient approach in securities selection processes, both in equity markets and in bond markets (government and corporate bonds).

Investments are subject to market fluctuations and the risks inherent in investments in securities. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay, the strategies described being in risk of capital loss.. There is no guarantee that the performance objective will be achieved. Past performance or achievement is not indicative of current or future performance.t is not indicative of current or future performance.