There’s been a large increase in factor investing overall in the past year, as well as — significantly — the number of investors in North America who think it can be extended to fixed income, according to the fourth annual Invesco Global Factor Investing Study 2019-U.S. and Canada.
Invesco’s study found that respondents have continued to boost their factor allocations overall, both in the number of factors they target and their usage of multi-factor strategies, the Atlanta-based investment management firm said Monday.
Almost half (45%) of the investors surveyed globally increased factor allocations in the past year, while 65% of North American investors planned to increase their factor allocations over the next three years, according to Invesco.
Meanwhile, more than 66% of respondents also reported that their factor investing performance met or surpassed expectations for the performance of their traditional active or market-weighted allocations, Invesco pointed out. Investors are also maintaining their conviction in factor investing, with 77% of North American respondents waiting at least three years before judging performance, it said.
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But there was one major development seen in the study that really stood out, according to Vincent de Martel, Invesco senior solutions strategist, who told ThinkAdvisor: “What struck me this year really is the increase in proportion of factor investors who are really ready to adopt factor investing in the fixed income space” now. There had been some interest among factor investors in fixed income “for a few years … but this year we have over three-quarters of wealth managers who view the approach of factor investing now being applicable to fixed income,” he said.
De Martel, who’s been studying factor investing for about 10 years, chalked up that significant interest in the fixed income space to issues including the market for fixed income being “challenged with low interest rates.” That’s causing many investors to start thinking how they can make their assets “work harder,” he explained, adding many of them are turning to factor investing in fixed income “to try and enhance their allocations.”
A whopping 61% of institutional investors and 76% of wealth managers now view the approach as being applicable to fixed income, Invesco found. The growing trend is linked closely to widespread recognition that the returns of all fixed income portfolios, whether they’re built using a factor-based approach or not, will be implicitly driven by exposure to factors, it said.
“The Invesco Global Factor Study demonstrates that there is wider, more dynamic adoption of factor investing, suggesting growing maturity and sophistication in the factor market,” according to Mo Haghbin, chief operating officer of Invesco Investment Solutions. “Factor investing has shifted from academic theory to an actionable strategy for global investors and the study allows us to understand what issues are key to their investment decisions,” he said in a statement.
This year’s study also found that, in aggregate, investors are: (1) More widely interested in factor fixed income strategies and have opinions on which factors should work best; (2) moving to a more dynamic approach for implementation of factors by a three-to-one majority; and (3) taking more defensive, long-term factor positions, Invesco said.