Factor Rotation: Tilt, Don’t Time

By Astor Investment Management via Iris.xyz

For decades, investors have been interested in factors—attributes such as value, momentum or market capitalization. But as investors have also experienced, as certain styles or themes go out of favor, factors typically go through periods (and potentially extended periods) of underperformance.

Now, investors are looking more closely at factor rotation, shifting from, say, growth to value, or overweighting low volatility stocks rather than value stocks.

But how? In the short term, the best way to avoid underperformance in any particular factor is with diversification rather than tactical timing. For the medium and long term, however, there is evidence that using macroeconomic and other risk-based approaches may be effective for factor rotation.

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