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Multi Factor Index Strategies – How Useful for Factor Sharing?

by Global Beta Advisors Global Beta Advisors
Multi-factor index fund shares are gradually becoming the favored approach to factor investing. Multi-factor index strategies bring simplicity, transparency and toughness to the investment process and can easily serve as a great starting point for factor sharing. The multi-factor strategies build upon the concept of diversification which combines exposures to different factors that further mollify the effect of drawdowns and increase the possibility for outperformance. 

The renowned companies make use of multi-factor index strategies to provide diversified exposures through allocations to value, low volatility, quality, momentum and size. They also make use of the research affiliates, fundamental index methodology, which loads companies based on fundamental measures of company size instead of their market capitalization. 

The multi-factor index provides the high return, outpacing the simple diversification strategy without a significant increase in risk. The comprehensive factor indexes are specifically designed to capture a broad set of different recognized factors funding to equity market performance. The indexes apply a constant and transparent methodology to achieve exact exposure to target different factors. 

The professional advisors offer index and multi-factor strategies, provide support for growth and arrays of tools to help investors, advisors and institutions to meet their goals and objectives. The size factor index is designed to capture the return of factors which have amazingly excessed the market returns over the long run. 
Since different asset classes have distinct risk and return characteristics, the returns growing to different equity factors can also be seen as distinct, changing according to the economic cycle and market setting. Multi-factor indexes are commonly used strategically, to target long-term sources of excess returns. This compares to single factor models, for which the payoff for exposure to any one factor is highly variable through the investment cycle.

In recent times, we have seen that the well-managed funds make use of digital system to track an index. But we also cannot ignore the development took place in the techniques and strategies of investment factors. With many smart-indexing investing options, multi-factor funds play crucial role in the significant growth of exchange traded funds industry. Such multi-factor funds offer investors concurrent exposure to more than one investment factors. 

Capacity matters for factors investors. The professional make use of multi factor index strategies looking at the size Factor Index and further illustrate approaches that can be used in index design to balance high exposure. This aids in targeting factors with a great level of investment capacity.

Various multi-factor portfolios of different combinations are created with much risk and return characteristics than any single factors. Moreover, the risk profile can be easily tailored to the investors to best meet their risk needs. 


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Created on Apr 8th 2020 07:27. Viewed 489 times.

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