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Thinking Ahead Institute and Amundi publish joint report on factor investing
United Kingdom, March 15, 2018
Investing in equity factors for the long run’ explores the benefits and challenges of factor-based strategies
Investors with a long time horizon are increasingly looking to factors as an attractive means of generating returns from equity markets, according to a co-authored report by Amundi Asset Management and the Thinking Ahead Institute. The report entitled ‘Investing in equity factors for the long run’ assesses the benefits and challenges of factor-based approaches to equity investing.
In addition, it shows that by quantifying risk premia such as value, quality, size, momentum and minimum volatility, factors help systematically capture sources of returns traditionally exploited by active managers. It contrasts short-term investors that can destroy value by chasing the “hottest” factors and long-term investors that are more likely to benefit from holding a portfolio that is well-diversified across multiple factors.
Understand crowding and capacity constraints
The authors suggest that as interest in factor investing increases, investors should closely monitor capacity and liquidity constraints, as well as frictional costs. This is because factor-based approaches, being selective in nature, can entail some reduction in investment capacity and liquidity compared to conventional portfolios.
The success of any particular factor can potentially lead to a crowding effect, creating extreme valuations and greater chance of high drawdowns in the future. Fortunately, crowding can be monitored and controlled by relatively simple measures, which are an essential element of a factor-based investment strategy.
Tim Hodgson, founder of the Thinking Ahead Institute, and a co-author of the report, said: “We are always looking for investment offerings that are aligned with the needs of the end saver, that are appropriately priced, and that are efficient in converting risk into return. More than that, we believe in the power of collaboration to achieve those ends, with this research paper being an excellent example.”
Bruno Taillardat, Global Head of Smart Beta & Factor Investing at Amundi, and a co-author of the report, said: “This report is a practical guide to asset owners and advisers looking for superior long-term returns using factors. Amundi is pleased to have collaborated with the Thinking Ahead Institute to help investors understand factor selection, the uses, their benefits but also the implementation challenges of factor strategies.”
Amundi Asset Management is a member of the Thinking Ahead Institute.
The report can also be accessed at this link: https://www.amundi.com/int/Investment-opportunities/Smart-Beta-Amundi/(tab)/Thought-leadership2
The Thinking Ahead Institute is a global not-for-profit member organisation whose aim is to influence change in the investment world for the benefit of savers. The Institute’s members comprise asset owners, investment managers and other groups that are motivated to influence the industry for the good of savers worldwide. It currently has 40 members with combined responsibility for over US$12 trillion and is an outgrowth of Willis Towers Watson Investments’ Thinking Ahead Group
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About Amundi
About Amundi
Amundi, the leading European asset manager, ranking among the top 10 global players[1], offers its 100 million clients - retail, institutional and corporate – a complete range of savings and investment solutions in active and passive management, in traditional or real assets. This offering is enhanced with IT tools and services to cover the entire savings value chain. A subsidiary of the Crédit Agricole group and listed on the stock exchange, Amundi currently manages more than €2.2 trillion of assets[2].
With its six international investment hubs[3], financial and extra-financial research capabilities and long-standing commitment to responsible investment, Amundi is a key player in the asset management landscape.
Amundi clients benefit from the expertise and advice of 5,700 employees in 35 countries.
Amundi, a trusted partner, working every day in the interest of its clients and society.
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