The Growth of Factor-Based Investing

Excerpt from InvestmentNews, published May 18, 2019


Factor-based investing looks at a number of characteristics that are associated with either higher returns or lower risk, such as momentum, value or size. For advisers, the appeal of factor analysis is the ability it provides to make investment decisions based on those factors, which are regarded as a more precise tool for portfolio construction and risk management.

"It's been a journey for me away from active managers and toward factor funds, but I'm now analyzing client portfolios based on factor exposures," said Eric Walters, president of Silvercrest Wealth Planning.

"Active managers are trying to guess the market," Mr. Walters said. "With factor investing, I decide which factors are important to my clients and I do the research looking for funds where those factors are most robust. It's more technical than just picking active managers.