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There is strong empirical evidence for the existence of low risk, value, momentum and size factor premiums in the corporate bond market.
Recently a new factor was added to the literature: Quality. In credits, we see Quality as a natural extension of pure Low-Risk. All our credit factor models have used Quality since inception, and have expanded its use over the years.
Laurens Swinkels is back at Robeco. With the researcher's return, Robeco is strengthening its Scandinavian sales and account management team and Investment Research department. “I’m going to explain quant investing and the application of research multi-factor investing strategies .”
A recent study suggests that sector investing does as well or even better than factor investing in a long-only context. We challenge this conclusion and show that an explicit allocation to well established factors yields better results than allocation to sectors.
“Putting your research to the test is always exciting, and if it then works out well, then that’s very satisfying.” That’s how Patrick Houweling describes celebrating the first anniversary of the Global Multi-Factor Credits fund, with an outperformance chart to go with the birthday cake.
We provide empirical evidence that the Size, Low-Risk, Value and Momentum factors have significant risk-adjusted returns in the corporate bond market. By combining these factors in a multi-factor portfolio, drawdowns and tracking error vs. the market are reduced, while the higher return and Sharpe ratio are preserved.
Factor investing has been successfully applied to equity markets. It can also work in the corporate bond market and can generate substantial premiums. An interview with portfolio manager and researcher Patrick Houweling.
Most academic studies on factor investing are about equities. Patrick Houweling and Jeroen van Zundert show that factor investing also works for bonds. How has their research paper been used to create a fund?
Interest in factor investing – investing in systematic sources of return – is rapidly increasing. Up to now most investor interest in this area has been focused on equities. But what are the possibilities for applying it to credits?
Although most factor research focuses on the equity market, the concept and benefits of factor investing apply equally well to the corporate bond market. A smart way of investing is combining the factors into a multi-factor credit portfolio in order to diversify across factors.