Factor investing for practitioners

Daniel Ung

The demand for transparent, rule-based investing11 It should be noted that factor strategies can be implemented via an active or a passive (rule-based) approach. Here, we focus only on passive, rule-based approaches because of the transparency of these strategies. has been the cornerstone of growth in the asset management for many years. Within the ambit of passive investment, factor – or smart beta – strategies22 Some commentators make a distinction between “smart beta” and “factor” investing, and suggest that one of the differences between the two is that “smart beta” strategies tend to be long-only strategies while “factor” strategies also encompass long/short strategies. Other commentators simply use the term “smart beta” to refer to any type of alternatively weighted strategies. In this chapter, both terms are used interchangeably. have enjoyed tremendous growth. Of the nearly US$4 trillion in exchange-traded fund (ETF) assets under management in the US in 2019, smart beta ETFs accounted for a total of US$905 billion.33 Source: ETF.com.

This strong level of interest in smart beta is not constrained to ETFs. Demand has increasingly permeated other types of fund vehicles

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