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Article

Not All Factor Exposures Are Created Equal

Eric Sorensen, Mark Barnes, Nick Alonso and Edward Qian
The Journal of Portfolio Management Quantitative Special Issue 2018, 44 (4) 39-45; DOI: https://doi.org/10.3905/jpm.2018.44.4.039
Eric Sorensen
is the chief executive officer and president of PanAgora Asset Management in Boston, MA
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Mark Barnes
is director of the Multi Asset Group at PanAgora Asset Management in Boston, MA
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Nick Alonso
is director of the Multi Asset Group at PanAgora Asset Management in Boston, MA
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Edward Qian
is the chief investment officer of the Multi Asset Group at PanAgora Asset Management in Boston, MA
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Abstract

Approaches to quantitative equity investing have evolved markedly. Thirty years ago, the focus was on alpha generation, but with the recent decade’s acceptance of smart (alternative) beta, the focus is turning to transparent methods of construction for factor investing. In this article, the authors present an approach for evaluating various methods of portfolio construction that lead to the same factor exposures. Four portfolios are of interest: factor weighted, cap weighted, equal weighted, and risk parity weighted. The authors compare these portfolios based on standard performance statistics as well as new metrics of value-added, such as performance participation rates and portfolio sector concentrations. The results indicate that once the desired factor exposure is achieved, it is beneficial to build the portfolio with the most desirable characteristics in terms of diversification.

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The Journal of Portfolio Management: 44 (4)
The Journal of Portfolio Management
Vol. 44, Issue 4
Quantitative Special Issue 2018
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Not All Factor Exposures Are Created Equal
Eric Sorensen, Mark Barnes, Nick Alonso, Edward Qian
The Journal of Portfolio Management Mar 2018, 44 (4) 39-45; DOI: 10.3905/jpm.2018.44.4.039

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Not All Factor Exposures Are Created Equal
Eric Sorensen, Mark Barnes, Nick Alonso, Edward Qian
The Journal of Portfolio Management Mar 2018, 44 (4) 39-45; DOI: 10.3905/jpm.2018.44.4.039
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  • Article
    • Abstract
    • HARVESTING OLD GROWTH
    • RUN OF THE MILL
    • PRIME TIMBER NOT SLASH
    • CLEAR CUTTING AT ITS BEST
    • COMPARISON OF PERFORMANCE
    • COMPARISON OF PARTICIPATION RATIOS
    • DISCUSSION AND CONCLUSIONS
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