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‘Many are based on past returns and make a lot of assumptions’“The factors that do work have two things in common: there is ample empirical evidence supporting their existence and there is an economic rationale for it. I was one of the authors of a study that looked into the performance of mutual funds that were exposed to factors. We found that the most well-known factors, value, momentum and low volatility worked best, while the more exotic factors did not.”
‘It is very important to know why factor premiums exist’“First, timing factors typically leads to higher transactions costs, which can have a large impact on total returns. Second, there are only a limited number of investment choices to be made. This phenomenon is called limited market breadth.”
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