One approach that has gained prominence in recent years is factor-based investing. At its core, factor-based investing focuses on the idea that traditional ways of seeking portfolio diversification, typically by asset class, are less precise than models that seek to understand factors underlying potential investment risks and returns, including economic growth, inflation, volatility and company size. Today, some firms are using factors broadly, some are quite sceptical and many are finding selected uses for factors.
A recent global survey conducted by the Economist Intelligence Unit and sponsored by BlackRock sought to understand whether and how institutional investment firms are using factors, whether factor use is meeting firms’ expectations, what reservations some firms still hold and what tools and tactics have helped firms increase their use of factors.
