A Trustee Guide to Factor Investing

Abstract

Factor investing is rapidly becoming mainstream in the investment community. Although the technique has progressed impressively, the governance to implement it successfully has lagged behind. In this article, the authors analyze how pension funds and institutional investors implement new insights into factor investing and how they work with the factors that drive asset returns as a portfolio construction tool. The authors review hurdles in the implementation process, analyze the reasons behind them, and then develop a checklist with eight recommendations to consider when implementing factor investing. Looking forward, the authors explore three emerging approaches to factor investing and examine how these approaches could be implemented.

TOPICS: Analysis of individual factors/risk premia, style investing, pension funds