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Diversification over factors

Exposing the portfolio to a variety of factors improves diversification. The aim of diversifying according to underlying factors is to make the portfolio more robust.

Diversification using the factor approach differs from the traditional method of distribution over asset classes such as equities, bonds and private equity, commodities, hedge funds and regions. The latter approach doesn’t provide insight into the underlying factors that determine the return-risk ratio of a portfolio.

Factor investing means that we divide up a portfolio into factors with significant expected risk and/or return differentials. Accordingly, the assets in a factor-based portfolio are distributed over premiums such as low volatility, size, value and momentum.

Quantitative investing: invisible layers surface to deliver attractive returns
Quantitative investing: invisible layers surface to deliver attractive returns
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The quant cycle
The quant cycle
Equity factors follow their own sentiment-driven cycle that cannot be explained by traditional business cycle indicators.
19-10-2021 | Research
Looking under the bonnet of passive thematic indices
Looking under the bonnet of passive thematic indices
Passive thematic indices effectively trade against quant investors due to their generally negative exposures to factors.
12-10-2021 | Insight
Podcast: Why quant fixed income is a great diversifier
Podcast: Why quant fixed income is a great diversifier
While many quant equity strategies have struggled over the past few years, the performance of quant credits has been robust.
08-10-2021 | Podcast
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