The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.
The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.
Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is Robeco Switzerland AG, Josefstrasse 218, 8005 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/Robeco Switzerland product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/Robeco Switzerland offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.
This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.
A revolution in investment management is about to happen due to factor investing, says Professor Andrew Ang. Factor benchmarks to assess investment managers will contribute hugely to this change.
Understanding the nature of risk and return in asset prices is at the heart of Professor Andrew Ang’s research. The professor of Columbia Business School was keynote speaker on the Robeco Factor Investing Seminar. After his lecture for approximately 100 professional investors we took the opportunity to speak with him separately.
Factor investing is an investment style that aims to make money over the long term. It involves harvesting a long-run risk premium. Factor investing involves risk, so sometimes there are short-term losses.
Some of the factors involved are very simple factors and well known such as equities and bonds. These are the extra returns you get when investing in these markets. And some are more sophisticated dynamic factors such as value, growth, momentum, volatility, credit and duration.
Factor investing is a way of making strategic choices - what drives returns? But it can also be a source of diversification or alpha compared to traditional market-weighted benchmarks.
Just like ‘eating right’ requires you to look through food labels to understand the nutrient content, ‘investing right’ means looking through asset class labels for the underlying factor risks. It's the nutrients in the food that matter. And similarly, the factors matter, not the asset labels.
To take the food analogy further, the advice you would give for a baby with regard to nutrients is not the same as the advice you would give to an adult. There is no optimal mix for allocating factors either - it all depends on investor preference.
Actually, it has already unleashed two revolutions. The first revolution in investment management on harvesting factors occurred when the first market-index funds started in the 1970’s. The first revolution was very slow. Now a second revolution in dynamic factors is about to take place.
The second revolution is complicated, but the first one to create market-index funds was also complex. Just take the constantly changing price of the underlying securities. It may seem easy now, but the people who started these funds did not think so.
And the second one will also take time. This has to do with how people think and how the industry is structured. It is hard to get people to change.
The biggest challenge lies in the mindset of the investor. Organizational issues are also significant. Where does factor investing belong in an organization? We need to have structures in place to make sure we can stay the course, as factors are not always going to work. Sometimes they will fail, and sometimes skittish investors will get out right at the wrong time. Factor investing takes commitment and knowledge.
Portfolio management is not the biggest challenge. Clearly, there are more ways than one to manage a factor portfolio, but wanting to manage one is what counts most. There are already asset managers who can deliver on factor investing.
‘Factors are not always going to work’
The debate is wrong. Everything is active - even just choosing the proportion of equities in your portfolio, or how often to rebalance it. These are active decisions.
You should never overpay for something you can get more cheaply. The discussion about costs is linked to the use of factor benchmarks to assess investment managers. We need transparency on the underlying factors that drive performance. How much of a manager’s performance is alpha and how much is factor exposure?
Unfortunately, investors do not evaluate enough. Take the case of hedge funds - they do not evaluate performance against a factor benchmark. But they should! Why pay 2/20 [2% management fee, 20% performance fee] when you can get it for free? If you evaluate, you pay only where this is warranted.
Besides performance evaluation, factor benchmarks can be used for strategic allocation choices. Choosing between factor benchmarks - which differ just like long-only equity benchmarks - is an active decision.
Factor benchmarks can also be used to keep your active portfolio manager from deviating too much. For you, as an investor, these benchmarks represent optimal exposure to risk premiums.
‘We need transparency on the underlying factors’
Like market-index funds, this will become a mainstream trend. This is not in evidence yet, however, and even when the trend sets in, only a minority of investors will be willing to follow it at first.
The capital asset-pricing model started being applied in the 1950’s and 1960’s. It only became mainstream for investors in the 1990’s and into the 21st century (i.e. 30 - 40 years). The first academic factor papers appeared in the late 1970’s. Much empirical research took place in the 1980’s and 1990’s. We are only 20 years further now. Some developments take a long time.
The real research challenge lies in illiquid markets like private equity, infrastructure and real estate. How do you separate and measure their factor exposures? How do you measure returns? Can we make this area less opaque? Those are the big questions we should ask ourselves.
Some of my recent papers are focusing on this subject. It would be of tremendous benefit for investors if we could bring public benchmarks to those markets. But we don’t have them yet.
No, it was an assignment for the government. I am glad to hear it made an impact. Norway was very transparent about our report on the value of active management. The country has provided a great service to the investment community.