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Factor-optimization approach

A method of implementation according to which a portfolio is fully allocated to factors.

Here, traditional investment strategies are replaced entirely with the factor approach*. Allocation takes place over the full range of asset classes.

The research paper: 'Factor Investing in Practice: A Trustees' Guide to Implementation' (2014), distinguishes three methods of implementing factor investing. In addition to the factor optimization approach described here, these are the risk due diligence approach (page 32) and the use of factor tilts (page 20).

The adjoining illustration shows a traditional portfolio with allocation to asset classes (equities and corporate or government bonds). In the case of a full factor approach, the portfolio is constructed with attractive factors.

* Robeco takes a balanced approach to equities that ensures diversification and exposure to the principal factor premiums, such as the so-called 1/n solution.

Figure: Traditional portfolio versus the factor investing approach
Source: Robeco Investment Solutions 2014

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This page is intended for US prospects, clients and investors only and includes information about the capabilities, staffing and history of RIAM US and its participating affiliates, which may include information on strategies not yet available in the US. SEC regulations are applicable only to clients, prospects and investors of RIAM US. Robeco BV, Robeco HK and Robeco SH are considered a “participating affiliate” of RIAM US and some of their employees are “associated persons” of RIAM US as per relevant SEC no-action guidance. Employees identified as associated persons of RIAM US perform activities directly or indirectly related to the investment advisory services provided by RIAM US. In those situations, these individuals are deemed to be acting on behalf of IUAM, a US SEC registered investment adviser.

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