In the 1950s, the concept of a multi-factor strategy may have had investors scratching their heads at first mention, but that has changed over five decades later. A recent study by Invesco, a leading asset manager with more than 30 years of expertise in factor investing, showed that wider adoption of the factor strategy has taken place among North American investors.
The survey included over 300 institutional and wholesale factor investors globally, and results showed that as survey respondents obtained more experience with factor portfolios, the propensity to incorporate them into their overall investment goals increased.
While the strategy itself has been around since the 1950s, the use of factors has only started to materialize in recent years. Since Invesco first polled investors about factors in 2016, North American respondents have increased their adoption of factor strategies at an average rate of 5% per year.
What led to the wider adoption by investors? Vincent de Martel, Invesco’s Factor Solutions Strategist, said it’s a confluence of various factors, but education is first and foremost.
“Invesco has a long history with multi-factor strategies, founding Invesco Quantitative Strategies in 1983, and launching the first multi-factor ETF, Invesco Dynamic Market ETF (PWC), in 2003,” de Martel told ETF Trends. “We have always understood that developing internal capabilities is the first step for factor investors, of which education is a key component.
“Based on the response of the 300 factor investors interviewed for the 2018 study, academic research and support in training are among the top requirements for factor allocation. Invesco has conducted the Global Factor Study since 2016, and in prior years investors have explained that they use multiple resources to develop their own education, including asset managers and consultants.”
Invesco’s study revealed that an investor’s foray into factor investing typically begins with a single factor strategy. As the investor’s comfort level increases, it then leads to the incorporation of other factors as well as a migration from equities into other asset classes like fixed income.
Is the trend for the usage of factor investing on an upward trajectory? According to the study, nearly half of the respondents plan to increase their allocation to factor strategies in the next three years.