The Science Of Multi-Factor Investing

by: Gerstein Fisher


What is a factor based approach?

A visual history of factor based investing.

Learn the origins of multi-factor investing.

Factor-based investing has gained traction in our industry in recent years. More firms seem to be offering factor-based strategies, and a host of factor-based ETFs have cropped up. Amid the factor "hoopla," we think it makes sense to take a step back and shed some light on what factor investing is really about: What is a factor? Why does this approach make sense? What research is there to support it?

The short video below addresses some off these key questions. Highlights include the following:

  • At its core, factor-based investing is a way to look below the surface when analyzing stocks-to essentially uncover their "DNA."
  • To extend this analogy, research has found that certain security "chromosomes and genes" (factors) are associated with long-term investment outperformance.
  • Some examples of rewarded factors include size (small cap), value, and momentum.
  • Multi-factor investing seeks to identify and assemble portfolios of securities that possess these rewarded factors and assemble them in such a way as to optimize long-term, risk-adjusted portfolio performance.

As factor investing enjoys the spotlight, we hope this video shines a light on the approach itself in a way that is informative and helpful to those considering factor-based strategies for themselves or their clients.

For more information about the basics of multi-factor investing, see my article, A Third Way: Quantitative Multi-Factor Investing Explained.

This notice and the content to be expressed at the meeting it describes, is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any investment or service. Neither Gerstein Fisher, nor its affiliates offer tax or legal advice. The views and strategies discussed may not be suitable for all investors.

Securities are offered by GFA Securities, LLC., member FINRA and SIPC. Investment Advisory services offered through Gerstein Fisher, an SEC registered advisory firm.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.