Factor investors increasing allocations to weather market volatility and integrate ESG

Written by Adam Cadle

26/09/2022

Factor investors, including institutional investors, expect factor-based strategies to outperform in an inflationary environment with slow economic growth, and also believe the current market environment makes factor investing in fixed income more attractive as a better way to manage volatility and diversify portfolios.

According to Invesco’s seventh annual Invesco Global Factor Investing Study, based on interviews with 151 institutional and retail factor practitioners managing over $25.4trn in assets combined, 67% of respondents agree that factor investing helped them manage market volatility over the past year, and 64% said their faith in factors grew over the previous 12 months.

Forty-one per cent of respondents increased allocations over the past year and 39% plan to increase allocations in the next year.

Sixty-six per cent of investors now believe factors can be used to implement their ESG objectives, an increase from 2018 (42%). However, the lack of consensus around methodology remains a barrier to implementation, with respondents keen for further research in this area.

Invesco senior portfolio manager, quantitative strategies, Georg Elsaesser said: “Factor investing is clearly emerging as a solution to mitigate potential unintended biases from ESG integration in equities, and even more so in fixed income, where the task is more challenging. With ESG especially front of mind in EMEA, this is yet another trigger for re-intensifying demand for factor-based investment strategies.”

Related Articles