Guide to factor investing in equity markets FROM CONCEPT TO IMPLEMENTATION

Guide to factor investing in equity markets FROM CONCEPT TO IMPLEMENTATION

1

What is
factor 
investing?

The origins of factor investing date back to the 1970s. 
Factor investing is defined as investing in segments 
of the market with characteristics (factors) that have 
proven to achieve higher risk-adjusted returns than a 
passive investment in the market portfolio over the 
past decades. These segments offer a return premium 
in excess of the market.

The low volatility and value premium were already documented in the 1970s and the 
momentum and quality premium in the early 1990s.

Figure 1 above illustrates the higher risk-adjusted returns investors can obtain in the long run 
by investing in stocks exposed to factor premiums such as value, momentum, low volatility 
and quality, as well as to a balanced mix of all of these factors. 

Guide to factor investing in equity markets FROM CONCEPT TO IMPLEMENTATION