What’s covered?

  • Factors are present in all highly effective portfolios
  • Academic research has systematically identified factors as a driver of returns within and across asset classes, as well as across markets and countries.
  • There are various ways of accessing factor investing, such as through smart beta exchange traded funds (ETFs).
  • Smart beta ETFs provide investors with the ability to access factors in a simple and transparent investment vehicle.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed.

Introduction to factor investing

Factor investing leverages advancements in today’s data and technology to deliberately seek these historical return drivers in portfolios. Understanding how factors work can help you capture their potential for excess return and reduced risk, just as leading institutional investors and active fund managers have done for decades.

Factors are the foundation of portfolios — the broad, persistent forces that have driven returns of stocks, bonds and other assets.

Types of factors

There are two main types of factors that have driven returns: macroeconomic factors, which capture broad risks across asset classes; and style factors, which help to explain returns and risk within asset classes. Factors have generally had low correlations with each other and therefore tended to perform well at different parts of the economic cycle1.

Factor Investing

1. Source: MSCI, Focus: Momentum - Factor Investing

iShares Smart Beta ETFs

Smart Beta is one subset of factor investing. Factor investing harnesses the power of broad and persistent drivers of return. Factor investing can refer to macro factors (which affect returns across asset classes) as well as style factors (which affect returns within asset classes) and can be implemented with or without leverage. Smart beta strategies generally refer to style factors within a single asset class, implemented without leverage, most commonly in an ETF.

Accessing the entire range of factor funds

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