Multifactor Investing
Written on 10/08/2018

IFAs keep reading about Multi Factor Investing…

An area of markets that looks like a bubble to me…..amounts invested were reportedly £3bn in 2009, but now stand at twenty times that with some £70bn committed.

So we asked Ken Baksh, our investment fund manager in residence:

In my opinion,factor investing just a fancy name for investment process which tries to pigeon hole certain stock characteristics rather than conventional country or sector or market cap weighted.  This could be represented by value versus growth,or size or volatility or quality of company or momentum etc  

Everyone will claim that their strategy will outperform,and advisers need to check the rigour of the back testing used by the fund managers very carefully!  Two issues stand out in cases.

  1. Making sure the relevant stock is in the right category and behaves consistently as such.
  2. Somebody still has to decide the strategy to pursue in a multi factor approach.    Multi Factor investing is not a strategy, just a term for a procedure.
  3. One major investment decision that is being debated at this very moment is whether to move from more growth to value within the UK sphere.  That’s strategy.  

Multi-factor needs to be posted into a pigeon hole called process.

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