Robeco logo

Disclaimer Robeco Switzerland Ltd.

The information contained on these pages is solely for marketing purposes.

Access to the funds is restricted to (i) Qualified Investors within the meaning of art. 10 para. 3 et sequ. of the Swiss Federal Act on Collective Investment Schemes (“CISA”), (ii) Institutional Investors within the meaning of art. 4 para. 3 and 4 of the Financial Services Act (“FinSA”) domiciled Switzerland and (iii) Professional Clients in accordance with Annex II of the Markets in Financial Instruments Directive II (“MiFID II”) domiciled in the European Union und European Economic Area with a license to distribute / promote financial instruments in such capacity or herewith requesting respective information on products and services in their capacity as Professional Clients.

The Funds are domiciled in Luxembourg and The Netherlands. ACOLIN Fund Services AG, postal address: Leutschenbachstrasse 50, CH-8050 Zürich, acts as the Swiss representative of the Fund(s). UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zurich, postal address: Europastrasse 2, P.O. Box, CH-8152 Opfikon, acts as the Swiss paying agent.

The prospectus, the Key Investor Information Documents (KIIDs), the articles of association, the annual and semi-annual reports of the Fund(s) may be obtained, on simple request and free of charge, at the office of the Swiss representative ACOLIN Fund Services AG. The prospectuses are also available via the website https://www.robeco.com/ch.

Some funds about which information is shown on these pages may fall outside the scope of CISA and therefore do not (need to) have a license from or registration with the Swiss Financial Market Supervisory Authority (FINMA).

Some funds about which information is shown on this website may not be available in your domicile country. Please check the registration status in your respective domicile country. To view the Robeco Switzerland Ltd. products that are registered/available in your country, please go to the respective Fund Selector, which can be found on this website and select your country of domicile.

Neither information nor any opinion expressed on this 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 Switzerland Ltd. product should only be made after reading the related legal documents such as prospectuses, annual and semi-annual reports.

By clicking “I agree” you confirm that you/the company you represent falls under one of the above-mentioned categories of addressees and that you have read, understood and accept the terms of use for this website.

I Disagree

08-11-2023 · Research

Honey, we shrunk the factor zoo

How many factors does it take to compress the factor zoo? Quant researchers Alexander Swade, Matthias Hanauer, Harald Lohre and David Blitz set out to find the answer.

    Authors

  • David Blitz - Chief Researcher

    David Blitz

    Chief Researcher

  • Matthias Hanauer - Researcher

    Matthias Hanauer

    Researcher

  • Harald Lohre - Head of Quant Equity Research

    Harald Lohre

    Head of Quant Equity Research

Summary

  1. Of over 150 US equity factors just 15 factors effectively capture the alpha

  2. Novel factors sometimes supersede older factor definitions, emphasizing the relevance of innovation based on fresh insights or newly available data

  3. The number of equally-weighted or international factors cannot be reduced to fewer than 30, as they exhibit larger and more diverse alpha

Recently published Robeco research delves into how many factors are necessary to compress the factor zoo. The main objective is to substantially reduce the number of factors without sacrificing unique sources of alpha. By exploring this question, the researchers aim to bridge the gap between the academic factor models that typically comprise a handful of factors and the reported factor zoo that contains more than 150 factors.

The number of factors allegedly driving the cross-section of stock returns has grown steadily over time. When exploring how much this ‘factor zoo’ can be compressed, the researchers focused on explaining the available alpha rather than the covariance matrix of factor returns. Their findings indicate that about 15 factors suffice to span the entire factor zoo. This evidence suggests that many factors are redundant, but also that merely using a handful of factors, as in common asset pricing models, is insufficient.

As a consequence, a factor model consisting of only 15 selected factors can fully represent the diverse factor landscape. These 15 factors originate from 8 of the 13 factor style clusters, underlining the heterogeneity of the factors involved. When the researchers apply this factor selection while only consider published factors at each point in time, they find that the selected factor styles remain persistent. However, the specific style representatives vary over time, emphasizing the importance of ongoing innovation and adaptability in factor selection.

When the factor models are applied more broadly, several nuances emerge. Equal-weighted factors require a more extensive set of over 30 factors to achieve the same spanning ability, indicating more diverse alphas. Similarly, applying the factor selection to global data not only confirms the robustness of the selected factors but also reveals that they perform particularly well in the US, suggesting that international factors exhibit larger and more diverse alpha opportunities.

Read the full paper here:

Factor Zoo (.zip) by Alexander Swade, Matthias X. Hanauer, Harald Lohre, David Blitz :: SSRN



Get the latest insights

Subscribe to our newsletter for investment updates and expert analysis.

Don’t miss out