japanja
Achieving your investment goals with factors: reduce costs

Achieving your investment goals with factors: reduce costs

03-09-2018 | インサイト

Factor-based strategies can help investors reduce management costs. Fourth article of a series on how factors can help investors achieve specific goals.

Speed read

  • Most of active managers’ alpha can be attributed to factors
  • Targeting factors systematically helps reduce costs
  • Cheap generic factor solutions raise serious concerns

The context

One of the major trends seen in the financial industry over the past couple of decades has been the massive shift away from traditional active investment strategies and the rise of passive investing. Increased cost awareness on the part of clients and successive waves of product innovation, including the rapid expansion of passive index trackers like exchange-traded funds (ETFs), have played a crucial role, as it has become easier for investors to gain market exposure at much lower costs.

But while passive strategies have undisputable merits, they remain far from ideal. Passively following a market-weighted index may be a simple, transparent and cost-efficient way to achieve a diversified portfolio, but it also means acquiring securities without really caring about what is being bought. In addition, passive strategies inevitably lag the selected market index, once fees and transaction costs are taken into account.

In this context, many investors have turned to more systematic active investment approaches, including factor-based investing, in order to achieve better investment results than they would with purely passive strategies at a lower cost compared to traditional active management. In fact, a recent FTSE Russell survey of asset owners found that cost reduction ranked fourth among the top investment goals that led them to consider factor-based strategies.

最新の「インサイト」を読む
最新の「インサイト」を読む
配信登録

Scientific grounding

As the influential 2009 report1 on the Norwegian oil fund and factor investing showed, most of the added value of the fund’s active management did not reflect true skill. On the contrary, it could be explained by implicit exposures to a number of systematic factors, which could be replicated at lower cost compared to traditional active management.

At the same time, Robeco’s research2 and also our real-life experience with managing active factor strategies show that focusing on the well-established factors is clearly worth the effort, compared to passive strategies. Targeting these factors efficiently can add value, even after taking management fees, taxes, trading costs and investment restrictions into account.

Factor investing is about capturing proven factor premiums in a rules-based fashion, in order to generate superior risk-adjusted returns compared to the broader market. This systematic approach to obtain superior performance is generally achieved at a lower cost than with traditional active management. That is why factor investing is regarded by many investors as a third kind of investment strategy in between passive and active, as illustrated in Figure 1.

Figure 1: Factor Investing: a third way of investing

Source: “Foundations of Factor investing”, MSCI Research Insight, December 2013.

Similar to passive investing, factor investing is transparent, rules-based and relatively low cost. But like active investing, it has an active return, as illustrated in the image above. As such, many investors, both institutional and individual, have actually embraced it as a third bucket in their portfolio, to achieve consistent alpha over time at lower costs compared to traditional active strategies.

Other considerations

While keeping costs down should remain a priority, going for seemingly cheap generic factor-based products may not necessarily be the best option. These products are often based on popular smart beta indices, which do not unlock the full potential of factor premiums and expose investors to a number of pitfalls, compared to more sophisticated − but also more expensive − active factor strategies.

For instance, Robeco’s Head of Quantitative Research David Blitz showed in a 2016 research paper3 that the amount of factor exposure provided by popular smart beta strategies varies considerably, as does the degree of focus on a single target factor. Smart beta indices exhibit performance that is in line with the amount of factor exposure provided, but it seems that they do not unlock the full potential offered by factor premiums. Moreover, these generic products usually follow fully transparent indices, which have the same methodology and upcoming ‘trades’ and are therefore prone to arbitrage. The simplicity and transparency of these indices mean that other investors, such as hedge funds, can identify in advance which trades are going to be executed, and can opportunistically take advantage of this, leading to high hidden costs for those investing in products that track these indices.

Recent research4 by Robeco shows strong empirical evidence to support that this arbitrage is, in fact, happening. It suggests that many market participants anticipate upcoming trades in these public factor-based indices, at the expense of those who invest based on these indices, either via ETFs or index funds.

1 A. Ang, W. Goetzmann and S. Schaefer, ‘Evaluation of Active Management of the Norwegian Government Pension Fund – Global’, prepared at the request of the Norwegian Ministry of Finance, 2009.
2 E. Van Gelderen and J. Huij, ‘Academic Knowledge Dissemination in the Mutual Fund Industry: Can Mutual Funds Successfully Adopt Factor Investing Strategies?’, The Journal of Portfolio Management, 2014.
3 D.Blitz, ‘Factor Investing with Smart Beta Indices’, Robeco research paper, 2016.
4 J. Huij and G. Kyosev, ‘Price Response to Factor Index Additions and Deletions’, Robeco research paper, 2016.

重要事項

当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。

ご契約に際しては、必要に応じ専門家にご相談の上、最終的なご判断はお客様ご自身でなさるようお願い致します。

運用を行う資産の評価額は、組入有価証券等の価格、金融市場の相場や金利等の変動、及び組入有価証券の発行体の財務状況による信用力等の影響を受けて変動します。また、外貨建資産に投資する場合は為替変動の影響も受けます。運用によって生じた損益は、全て投資家の皆様に帰属します。したがって投資元本や一定の運用成果が保証されているものではなく、投資元本を上回る損失を被ることがあります。弊社が行う金融商品取引業に係る手数料または報酬は、締結される契約の種類や契約資産額により異なるため、当資料において記載せず別途ご提示させて頂く場合があります。具体的な手数料または報酬の金額・計算方法につきましては弊社担当者へお問合せください。

当資料及び記載されている情報、商品に関する権利は弊社に帰属します。したがって、弊社の書面による同意なくしてその全部もしくは一部を複製またはその他の方法で配布することはご遠慮ください。

商号等: ロベコ・ジャパン株式会社  金融商品取引業者 関東財務局長(金商)第2780号

加入協会: 一般社団法人 日本投資顧問業協会

本記事に関連するテーマ: