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Strategic Issues in Strategic Issues in Factor Investing Factor Investing
Andrew Ang
February 2015
Strategic Issues in Strategic Issues in Factor Investing Factor - - PowerPoint PPT Presentation
Strategic Issues in Strategic Issues in Factor Investing Factor - - PowerPoint PPT Presentation
Strategic Issues in Strategic Issues in Factor Investing Factor Investing Andrew Ang February 2015 Factors, not asset classes Factors, not asset classes Factor premiums dont come without risk Factors = Factors = Nutrients Nutrients
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Factors, not asset classes Factor premiums don’t come without risk
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Factors = Factors = Nutrients Nutrients
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5
Investment Factors Investment Factors
Equities Bonds
Represent the “average” investor
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- 5
5 10 15 20 1927 1937 1947 1957 1967 1977 1987 1997 2007
Value vs Growth Value vs Growth
MKT Value Growth
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Factors Go Beyond Asset Classes Factors Go Beyond Asset Classes Each factor premium is the reward for bearing risk in a different set of bad times
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Value: Rational Value: Rational Theories Theories
Value Growth vs
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Value: Behavioral Theories Value: Behavioral Theories
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CPPIB: Factor Investor CPPIB: Factor Investor
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Factor Investing a la CPPIB Factor Investing a la CPPIB
$1 Private Equity
=
$1.3 Public Equity—$0.3 Bonds
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Factor Investing a la CPPIB Factor Investing a la CPPIB
$1 Real Estate
=
$0.6 Public Equity+$0.4 Bonds
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Factor Investing a la CPPIB Factor Investing a la CPPIB
Consider the CAPM with a beta of 1.3
( ) 1.3 ( ) ( ) [ 0.3 1.3 ( )] $1 $1
i f m f i f m
E r r E r r E r r E r
Private Equity = Long Stocks, Short Bonds Real Estate = Long Stocks, Long Bonds
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Norway: Factor Investor Norway: Factor Investor
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2007:01 2007:06 2008:01 2008:06 2009:01 2009:06
- 2.5
- 2
- 1.5
- 1
- 0.5
0.5 1 GPFG Active Returns Fitted Whole Sample Fitted Expanding Window Actual
70%
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How Do You Do It?
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Factors Assets
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Who holds the market portfolio? Are you different from average?
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Value Value
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Momentum Momentum
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Equities Equities
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Buying Low and Selling High Buying Low and Selling High
Rebalance over factors, just as you rebalance
- ver equities and bonds
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Industry Developments Industry Developments
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Industry Developments Industry Developments
Alpha Alpha
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Industry Developments Industry Developments
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Factors + Alpha in Liquid Markets Factors + Alpha in Illiquid Markets Factor Index Investor Needs
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Asset management isn’t really about Asset management isn’t really about the management of assets the management of assets
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