Peer & Competitive Analysis
“Markets Media” article by Style Research on the growing importance of factor-based investing and how it’s evolved in 2017
Markets Media published a Q&A with Kirsten English, CEO of Style Research. In this interview, Kirsten discusses how factor investing evolved over the past year as well as the importance of factors in understanding portfolios, comparing them on a level field and applying a common factor-based framework to assess risk and performance attribution. She also discusses the critical role for factors given the growth of ETFs, regional considerations for global investing, how to look at ESG, and some common mistakes in applying factors. Kirsten wraps up with forecasts on the continuing evolution of factor investing in 2018 and how that will impact product development.
Style Research Writes in “ETF Strategy” on the Need for a Consistent Factor Framework for ETFs
“There are lots of ways to entice people into parting with their money – and attractive packaging and descriptions are near the top of the list. ETFs are no exception to the aggressive marketing taking place; neither are the factors that are often used to calibrate the performance of these investments. But can you really trust the products? And what should you look out for?”
After years of record-low interest rates, investors have ramped up their searches for higher yielding products. One obvious choice has become income funds, a trend many asset management firms have realized and embraced by launching an increasing number of income products every year since 2009 across equities, fixed income and multi-asset products. This includes over 840 different equity income-oriented funds competing globally and managing assets of over £600bn (source: Lipper). Read More
The proliferation of funds has led to the explosion of investment factors, factor analysis and factor investing. Everyone – from fund managers to consultants to investors – is trying to find their edge to succeed in a dynamic, if sometimes chaotic or confusing, investment market. Within the debate of active vs. passive strategies, the determination of investment philosophy, and understanding what is truly driving fund creation and performance, what is the role of factors and how can one benefit? Read More
Not every factor out there is effective, or even credible, for the process of equity research and analysis. While this is hardly news, it’s an issue that hasn’t received enough focus – given the billions of dollars that are dependent on this research.
John Cochrane, currently a Senior Fellow of the Hoover Institution at Stanford, coined the now ubiquitous term “factor zoo” in his paper Discount Rates. Cochrane described the over-proliferation of factors used for analysis – and the resulting confusion for today’s professionals who must understand what these factors mean, how they are distinctive, and how to best apply them.
Twenty years ago, Style Research established criteria to consistently identify factors that support an effective analytical factor framework – criteria that are key when tackling the “factor zoo.” (See “How To Differentiate Equity Products: Six “Must Haves” For A Style Factor Framework” and its related infographic). In this “Effective Factors” blog series, we’ll provide deeper perspective on the six criteria we apply to identify qualified factors to build into our analytics and why these criteria are important to equity fund research. Read More
Comparing Fundamental Active, Smart Alpha, and Smart Beta Funds with Objective Factors
Learn how factor-based analysis of funds can identify underlying – and often unexpected – differences in similarly labeled funds. In a previous Style Research article, Bernie Nelson discussed key criteria for an effective factor-based analytical framework. In this new case study, Bernie puts this approach into practice, analyzing three funds labeled “US Large Value.” A deeper, more detailed comparison using transparent factors reveals distinctions in stock diversification, sector exposures, and specific styles – and shows how these funds are more different than their descriptions would indicate.
The DOL Fiduciary Rule adds pressure on asset managers and financial advisors already encumbered by increasing competition and ongoing regulatory change. That’s why factor-based analysis is so valuable. Analyzing funds based on individual factor exposures provides the level of insight, detail, and transparency that enables managers to respond not only to the new rule but to demonstrate greater product differentiation and deliver better customer service.
Fund sellers need to ensure their funds are positioned effectively against competitors. Fund buyers need to understand fully what exposures and risk might be within products they are buying or holding.
How does your style factor framework stack up? Check against these six criteria for selecting factors to create equity product differentiation.
Author: Style Research | Categories: Peer & Competitive Analysis
A year on from last June’s shock Brexit referendum result, negotiations have begun on the terms of Britain’s exit from the European Union. Shortly after the 2016 vote, we discussed the likely economic impact of Brexit, the investment factors anticipated to emerge most strongly, and how managers were positioned to respond. In this update, we review the past twelve months’ activity in three ways:
- How has the UK market behaved – which sectors and factors performed best over the period?
- How are domestic UK equity funds oriented, and how have they changed since last year?
- Which funds performed best, and what drove their returns?
How do you compare a fundamental active manager, a quantitative active manager, and a smart beta product?
Professional fund buyers and fund sellers don’t just look at historic performance or fees to differentiate equity products. Fund buyers demand more visibility into what they are buying or holding. What is the future potential for return and risk? Will buying or holding this product match their investment preferences and fit into their existing portfolio? Will the fund provider continue to manufacture a consistent product? Fund sellers also know that clear portfolio insights are essential to deliver their key messages and help them stand out from the crowd. They need proof statements to help them win business and retain clients. As in any market, other than competing on price, sellers must differentiate – or they will die. Read More