Factor-based investing is a strategy used to choose securities based on those factors which are associated with historically higher returns.
In recent times, some of the “opposite side” factors like low value and low quality have outperformed along with outperformance from the traditional factor of high momentum, Lunt said.
“Factor rotation provides a powerful tool to adapt to changes in factor seasons,” he said. “As traditional factors like value and quality come back into favor at some point, FCTR has the ability to rotate into these factors.”
Related: Invesco Launches New Suite of Factor ETFs
Factor-based strategies attempt to offer exposure to securities which target a desired deviation from the risk-return profile relative to the broader market. Although single-factor investing offers the ability to hone in on a desirable characteristic of a stock, a multi-factor approach may provide the added benefit of diversification and provide a solution that seeks to enhance returns over time.
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