Scientific Beta

Hedge Fund Journal: "A new approach known as factor investing has recently emerged in investment practice, which recommends that allocation decisions be expressed in terms of risk factors, as opposed to standard asset class decompositions. While intuitively appealing, this approach poses a major challenge, namely the choice of the meaningful factors and the corresponding investable proxies."

Hedge Fund Journal 14/09/2015

"(...) A new approach known as factor investing has recently emerged in investment practice, which recommends that allocation decisions be expressed in terms of risk factors, as opposed to standard asset class decompositions. While intuitively appealing, this approach poses a major challenge, namely the choice of the meaningful factors and the corresponding investable proxies. Simply put, factor investing proposes to regard each constituent in an investor’s portfolio, and therefore the whole portfolio, as a bundle of factor exposures. Obviously, factor models, such as those of Sharpe (1963) and Fama and French (1993), have long been used for performance measurement purposes, and several factors correspond to classical investment styles, such as value-growth investing, trend following or short volatility, that were in use in the industry before they were formally identified as asset pricing factors. In this context, the question arises as to whether factor investing is truly a new welfare-improving investment paradigm or merely another marketing fad. (...)"