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How to Implement a Factor-based Smart Beta Investing Strategy

5.7_glasses_focus
5.7_glasses_focus

At the heart of smart beta investing is the notion of re-writing investment rules to seek to improve investment outcomes by targeting exposures to intuitive, well understood investment ideas - what quants would call factors. You might think of factors as the DNA of a stock or bond: the characteristics that help explain its behavior over time, just like the chromosomes that govern a person's creative ability or the color of their eyes.

Focusing on four factors

correlation
  1. Single factor strategies: Tactically minded investors may find single factor strategies a useful tool to express their views. Indeed, the cyclicality and low correlations among factors make single factor strategies a potential way to alter their portfolio's factor DNA and express investment ideas. iShares Factor ETFs, such as MTUM , VLUE , QUAL and SIZE allow investors to tailor factor exposures and implement specific views or control portfolio exposures along factor dimensions.
  2. Multi-factor strategies : For the less tactically minded, a strategy that invests across multiple factors can provide a diversified approach. While each factor strategy may be individually compelling, they may be even more compelling when combined together as a result of their low correlations with each other.
my colleague Russ Koesterich points out in a recent post QUAL VLUE FactorSelect TM series of iShares ETFs

The take away?

Sara Shores is Global Head of Smart Beta for BlackRock. You can read more of her posts here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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