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.
Investors increasingly decide to allocate strategically to factor premiums such as Value, Momentum and Low-Volatility. Robeco is now incorporating a fourth factor, Quality, in the investment process of its factor funds.
As a pioneer of factor investing, Robeco’s latest contribution to the debate on how it works was to conduct a study on how investors apply factor investing to their equity portfolios in practice. The study found that the Value, Momentum and Low-Volatility premiums have been particularly large and robust over time, and over different markets. Even when using more conservative expected returns for the future, the study still found that the optimal allocation to these premiums should be sizable.
Moreover, allocation to factor premiums should be diversified (where a simple equal-weighted approach already seems to be quite efficient) and determined strategically in order to avoid chasing recently winning styles. The study revisited this recommendation by using five years of new data and also incorporating the Quality factor. It showed that in ‘out-of-sample’ data, such a factor investing strategy continued to add value. Interestingly, similar factor premiums also appear to be present in other asset classes, such as bonds and commodities.
The quality effect is the tendency of high-quality stocks to outperform low-quality stocks and the market as a whole. What sets the Quality factor apart from the other factors is that the concept of ‘quality’ is less well defined than these other factors. For instance, even though Value can be defined using different measures, the consensus is that a stock is considered cheap if the market price is low relative to a fundamental measure. The Low-Volatility effect relates to the premium prevalent for low-risk stocks. High-quality companies typically are considered to be highly profitable, have high earnings quality, and/or are conservatively managed. Other stock characteristics that are linked to the Quality premium include safety and growth. Hence, ‘quality’ has a very broad meaning and as a result is much vaguer than the other factor definitions.
A potential issue with this vague factor definition is that the term quality can be misused or even abused. For instance, Robeco research shows that safety, measured by financial leverage, earnings stability, low credit risk and sometimes even return-based metrics such as market beta and volatility is actually a very different factor on its own, essentially becoming the low-volatility (or low-risk) factor.
And secondly, the research reveals that other quality definitions have weak or sometimes even non-existent (standalone) predictive powers for future returns, as is the case for growth measures such as rising profitability, but also an often-used measure like return on equity (ROE). Robeco’s concerns with existing generic Quality strategies is that these are suboptimal due to the use of poor definitions which are sometimes even mixed with other factors to boost their (back-tested) performance. This approach does not result in achieving efficient exposure to the Quality factor to capture the quality premium.
This research on the quality factor resulted in a multi-dimensional view on ‘quality’ that incorporates profitability, earnings strength and management policy. Each of these three themes has a deeply rooted academic underpinning, and is shown to have a strong standalone performance. Robeco therefore believes that a sophisticated approach to quality investing will result in a positive and robust return premium.
Meanwhile, a vast amount of studies have attempted to validate or falsify the existence of the Value, Momentum and Low-Volatility premiums. For the ‘newer’ Quality factor premium the evidence is strong, but it has been put to the test less frequently than the other factors. As such, Robeco is positive on the Quality factor but would start with a lower weight to this factor.
This report is not available for users from countries where the offering of foreign financial services is not permitted, such as US citizens and residents.