RT Journal Article
SR Electronic
T1 Fundamental Factors That Improve Your Investments: <em>A Practical Guide</em>
JF The Journal of Investing
FD Institutional Investor Journals
SP joi.2019.1.092
DO 10.3905/joi.2019.1.092
A1 Pim Lausberg
A1 Alfred Slager
A1 Philip Stork
YR 2019
UL https://pm-research.com/content/early/2019/05/23/joi.2019.1.092.abstract
AB We explore how investors can use the factors that drive their portfolio returns, focusing on fundamental factors instead of the widely discussed style factors. Fundamental factors explain the majority of the return variation among assets. There are times that a given factor sensitivity offers exceptionally high or low rewards in all assets exposed to it. We present an intuitive framework for measuring and steering fundamental factors in a portfolio. Practical examples show how to identify factor concentration risks and tilt a portfolio toward desired exposures. We argue that investors best use a factor-based approach in conjunction with traditional asset allocation, rather than as a substitute. In addition, we provide suggestions on how to embed the factor-based approach within an existing investment process.