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 contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.
Please read this information carefully.
This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.
2. Important risk disclosures
Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:
3. Local legal and sales restrictions
The information contained in the Website is being provided for information purposes.
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. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.
4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.
5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.
6. Third party websites
Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage.
7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.
8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.
10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong.