Factor Investing

Harnessing factors for your needs

Factor-based approaches seek to gain efficient, low-cost exposure to characteristics that typically outperform the broad market, either on an absolute basis or after accounting for risk. Many investors are familiar with factor investing as a way to pursue diversified, uncorrelated sources of return. But, they may think of factor strategies as simply replacements for active or passive strategies.

The factor investing teams think beyond smart beta. They understand that using factors thoughtfully and strategically may help you achieve what matters most to you. Our teams apply factor approaches across equity, fixed income, currencies, and commodities — when selecting securities; building portfolios; and designing broad, outcome-oriented investment solutions. Their processes are rules-based, built for transparency, and guided by well-grounded investment and risk management practices.

Our dedicated factor-based investing teams use both fundamental and quantitative approaches to factor investing. They aim to improve benchmarks, build portfolios that deliver attractive risk-adjusted returns, and tailor solutions to client needs.

Passionate about factors

Portfolio Manager Harindra de Silva of the Systematic Edge Team speaks about using factors to help investors in their pursuit of long-term financial performance.

Passionate About Factors

Harindra de Silva: I am passionate about factors because I think they have a huge impact on portfolio returns. And if you manage a portfolio’s exposures to different factors then we can manage the potential return for the risk budget the client has given us. In 1995 when we first went out and started talking to people about equity factors and how they affected the return of the portfolio, we got lots of raised eyebrows saying we were speaking a different language. But increasingly, we are moving to a world where people realize that managing factor exposure is really a key determinant of how a portfolio is going to perform. So, it’s fulfilling to see that you can actually change an industry in a meaningful way. The ultimate goal, remember, as an investor, is to give the client a better outcome, right? So, an integrated approach to investing in factors, I think, is critical if you’re going to be successful in factor investing. So, we look at a multitude of factors — looking at factors at a very, very granular level — because often what you find is there will be one type of factor that’s a little bit more rewarding than the other. And if factors drive returns, and you manage the exposure of the portfolio to those factors — not passively but actively — then we can design a portfolio that helps them achieve that outcome. That is what’s so exciting to me about this journey that we are on. So, we have a pretty broad-based investment team. If you look at the team, you’ll see wide variety of backgrounds. And you got to have something in common. And I think what brings us together as a team is the intellectual curiosity we have and the thrill we get from solving the investment problems that clients face. That is really the thing that brings us to work every morning.


Close-up image of a man’s hands as he stands in a farmfield of wheat, holding a few stalks of wheat.

Factoring in your desired outcome

We believe our strategies have the sophistication to meet the needs of experienced factor investors. If you’re new to factor investing, our approachable experts are happy to help you learn more. We work with you to understand your desired outcome and the ways it relates to your views about balancing risk, return, and cost. Any of our teams using factor-based investing can demonstrate their philosophy and process for you. And, they can help you develop a clear understanding of the ways you might employ factor-based approaches to invest toward your objectives.

The diversity of factor investing

We believe that factor-based investing may help improve risk-adjusted returns across equities, fixed income, commodities, currencies, and volatility.

While most factor-based investing focuses predominantly on the equity markets, our research shows us that factors are helpful in other asset classes as well. For example, size, quality, and carry tend to be particularly useful in fixed income. Our teams use both single-factor and multi-factor approaches. We have found that specific factor risks tend to be linked to the economic cycle and factor cross-correlations tend to be low. As a result, multi-factor exposures may help diversify a portfolio and improve its performance in a variety of market conditions.

We can help you explore the dynamic world of factor-based investing and what it means to you across asset classes and in different portfolio roles, including core or satellite strategies.

The breadth of our expertise

Each of our teams bring independent thoughts and processes, including differing perspectives and approaches for integrating factor-based investing into security selection, portfolio construction, and strategic solutions.

Systematic Edge Team

  • Applies a systematic approach to factor investing incorporating active insights while preserving the benefits of more passive strategies
  • Actively manages quantitative strategies
  • Aims to exploit the persistence of factor performance while maintaining adaptability
  • Uses historical risk models and forward-looking risk tools to budget for risk at the stock level, based on implied volatility, news events, and environmental, social, and governance (ESG) scores
  • Seeks to deliver consistent risk-adjusted returns throughout a market cycle

Systematic Equities

  • Provides strategies for multi-factor equity needs across the market cap and geographic spectrum with a focus on valuation, earnings fundamentals and investor sentiment
  • Objectively and systematically analyzes companies based on factors related to valuation, earnings, and momentum
  • Gives factor-based rankings to indicate relative attractiveness of each company in an investment universe
  • Applies risk control measures, including guidelines for exposures to individual positions, sectors, and risk factors

Multi-Asset Solutions

  • Seeks opportunities that arise due to investor behavior, structural constraints, and compensation for risk
  • Employs factors across equities, fixed income, currencies, and commodities in both long-only and long-short implementations
  • Seeks to balance risk across our factor universe, with allocations to value, carry, and momentum contributing equally to portfolio risk
  • Pursues consistent returns over a market cycle

Systematic Fixed Income

  • Employs a systematic, process-driven, factor-based approach to active and factor-enhanced passive strategies
  • Leverages factors and broader investment capabilities to tailor efficient fixed-income solutions to specific client needs
  • Seeks to deliver consistent risk-adjusted returns throughout a market cycle through diversified factor exposure and prudent risk management
Three men are walking through a farm field into the sunset.

Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest rate changes and their impact on the fund and its share price can be sudden and unpredictable. Investing in environmental, social, and governance (ESG) carries the risk that, under certain market conditions, the investments may underperform products that invest in a broader array of investments. In addition, some ESG investments may be dependent on government tax incentives and subsidies and on political support for certain environmental technologies and companies. The ESG sector also may have challenges such as a limited number of issuers and liquidity in the market, including a robust secondary market. Investing primarily in responsible investments carries the risk that, under certain market conditions, an investment may underperform funds that do not use a responsible investment strategy.