Scientific Beta

Asia Asset Management: "With increasing investor interest in multi-factor solutions, product providers have been debating the respective merits of the “top-down” and “bottom-up” approaches to multi-factor portfolio construction."

Asia Asset Management March 2017

Article by Felix Goltz, head of applied research, EDHEC-Risk Institute, research director, ERI Scientific Beta

"(...) With increasing investor interest in multi-factor solutions, product providers have been debating the respective merits of the “top-down” and “bottom-up” approaches to multi-factor portfolio construction. Top-down approaches assemble multi-factor portfolios by combining distinct sleeves for each factor, while the bottom-up methods build multi-factor portfolios in a single pass by choosing and/or weighting securities by a composite measure of multi-factor exposures. In this article, we discuss the results of recent research assessing the merits of both the approaches. (...)"