Investors are committing to factor investing for the long term, according to Invesco’s annual global factor investing study, released Monday.
Interviews for the study were conducted during the market turbulence of April and May, and investors still reported continued adoption, especially within fixed income.
“There’s no question that volatility has been a defining characteristic of markets this year,” Mo Haghbin, chief commercial and chief operating officer at Invesco Investment Solutions, said in a statement.
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What Your Peers Are Reading
Yet factor investors collectively have persevered, Haghbin said. “The evolution of factor investing continues to attract a wide variety of investors, which in turn drives the industry to continue to develop and refine factor offerings to meet those needs.”
For the new study, NMG Consulting conducted interviews with 238 pension funds, insurers, sovereign investors, asset consultants, wealth managers and private banks globally, which together managed $25.4 trillion in assets as of March 31. All respondents were “factor users,” defined as any respondent investing in a factor product across their entire portfolio or using factors to monitor exposures.
According to the survey, 65% of investors said factor performance had met or exceeded expectations — this following the initial shockwaves the pandemic sent through financial markets.
Invesco noted that factor investors understood that the full effect on their portfolios was not yet clear, but continued to increase factor allocations despite a challenging period and divergent factor performance as they assessed risk and return objectives over a long-term horizon.
Investors demonstrated this long-term approach to factor investing through their commitment to value investing. Despite recent underperformance, only 5% of institutional investors and 16% of advisors doubted that value would perform over the full cycle.
This continued interest in the value factor occurred at the same time that investors reported slightly tilting exposures to the quality and momentum factors for tactical reasons based on factor metrics, according to Invesco.
Confidence in Fixed Income Factors
Ninety-five percent of respondents in the new study believed factor investing could be applied to fixed income, up from 59% in 2018.
In terms of actual application, 40% of those surveyed said they used factors in fixed income, and 35% were actively considering introducing them into their portfolios.
For institutional investors, risk reduction has consistently been the most important driver of adoption, followed by increasing returns, Invesco said. However, the increased focus on controlling portfolios and improving benchmarking over the last two years suggests that investors are increasingly considering factors in the context of the whole portfolio, rather than in select sleeves or asset classes.