November 21, 2019

Factor investing considerations: Questions and answers

Portfolio construction methods are many and varied, particularly when it comes to the creation of portfolios exposed to common factors, such as, Value, Size and Quality. In this paper, we address questions that are frequently asked by clients, focusing on Selection & Weighting and comparing it to the Bottom-up FTSE Russell Tilt approach. We examine these issues from both a theoretical and empirical perspective, highlighting the importance of making like-for-like comparisons between different factor portfolio propositions when evaluating factor products.

The topics covered are:

  • Is one approach superior to another?
  • How should one formulate a fair comparison?
  • What is the role of correlation?
  • Can diversified weighting schemes help?