Factor investing has gained considerable traction over the past couple of years, particularly in the equity space. As a pioneer in this field, Robeco has experienced an acceleration in terms of investment flows, driven by various elements, including several significant mandate wins. Joop Huij, Head of Factor Investing Equities and Factor Index Research, explains some of the major trends in the market.
“That’s right. Factor investing is no longer considered a niche reserved only for large and sophisticated investors. And that’s actually a major shift. Whereas we used to talk almost exclusively to these big institutions, we are now seeing some growth in the number of midsized asset owners that are adopting factor investing as well.”
“Mostly investors, I think. Many leading institutional investors have been considering and implementing factor-based strategies for several years now. But the scientific foundations of factor investing can be complicated to assimilate and require significant groundwork.
“Smaller mid-sized players don’t necessarily have the resources to carry out this work. They tend to be more consultant-driven. And in recent years we have seen investment consultants across the board eagerly embracing factor investing. So, it doesn’t really come as a surprise that their clients – the mid-sized investors – are now adopting this strategy too.”
“Well, not necessarily. In fact, another phenomenon we’ve noticed is that while investors increasingly want to incorporate factor investing in their portfolios, they’re not always interested in the more traditional active strategies. Our conversations with clients reveal that implementing factor investing through index-based products is becoming extremely popular.”
“This has actually been confirmed by numerous studies. Roughly speaking, we can say that the early adopters of factor investing tended to be investors disappointed by their fundamental active managers and looking for factor-based – but still active – alternatives. Nowadays, however, we see an increasing number of investors who have used more market cap-weighted approaches choosing to implement factors using indices, because this is closer to what they are used to.”
‘We are now seeing some growth in the number of midsized asset owners that are adopting factor investing as well’
“Yes, indeed. We’ve seen a significant change in how investors view sustainability aspects. A few years ago, we started seeing interest in ESG considerations among investors. Robeco actually started explicitly factoring ESG criteria into its quantitative equity strategies as early as 2010. But investors have now become much more demanding, especially with regard to carbon emissions.”
“Robeco recently won a EUR 3 billion bespoke multi-factor equity mandate, which illustrates this well. A lot of time was spent fine-tuning the strategy and there was a strong emphasis on sustainability aspects. An important element was the introduction of a carbon benchmark, which enables our client to manage and reduce the overall carbon footprint of its portfolio.”
“And this new mandate is far from an isolated case. Earlier this year, for example, another pension fund selected Robeco to build a multi-factor equity index with integrated ESG components, to manage over EUR 1 billion. So, although we have been talking about ESG and attracting investors’ attention for some years now, integrating sustainability now seems to have become mainstream for factor investing.”
“One of the most important trends we’ve seen in this area in recent years has been the rise of multifactor strategies. Initially, investors tended to allocate to one preferred factor, such as value or low volatility. But they are now increasingly demanding solutions that provide exposure to multiple premiums. This enables them to reduce stress in years when one particular factor delivers below-average performance.”
“Inflows seen over the past few months have confirmed this rise in multi-factor allocation. Having said that, the value factor has also seen an unexpected rise in popularity. I think this has to do with how poorly this factor has performed over the past few years. Some investors have been disappointed and are now looking for more sophisticated value strategies as alternatives to generic value strategies.”
“Also, some investors have realized that, after several years of lagging performance of the value factor, their portfolio was underexposed to this particular factor. This explains why many of them decided to make an explicit allocation to this factor over the past 12 months.”
“At the same time, we’ve seen a growing demand for sustainable value. Generic value strategies tend to be overexposed to firms with high CO2 emissions, such as oil companies and energy companies. To address this, Robeco decided to launch a sustainable value strategy.”
This article was initially published in our Quant Quarterly magazine.
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 ACOLIN Fund Services AG, Affolternstrasse 56, 8050 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/RobecoSAM AG 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/RobecoSAM AG 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.