Survey: IIs look to factor investing for higher returns

Added 26th April 2016

More than 60% of institutional investors are hoping to increase the use of factor-based investment strategies to drive higher returns, according to a Blackrock survey.

Survey: IIs look to factor investing for higher returns

Three-quarters of Asia-Pacific institutional investors polled planned to increase the use of factor investment strategies, the highest among all regions globally. Blackrock suggested the increase was due to a late take up of the strategy in Asia.

Factor investing aims to map the risks and returns of all investments to a common set of underlying factors when building a portfolio. Typical factors that are used include value, inflation and smart-beta.

Mark McCombe, the firm's global head of institutional client business, said the unexpected correlations of asset performance during the financial crisis led to growing interest in factor investing in order to have a better understanding of underlying risks.

“Following an initial focus on risk management, investors increasingly believe that factor strategies can drive enhanced performance.”

Over the past three years, about 85% of insitutional investors have already used factor strategies, while about two-thirds said they have increased the usage.

Most new users (76%) said factor investing allowed them to have a better understanding of risk exposure and return. About 59% said greater diversification can be achieved, 56% said factor investing has lowered risks and 55% said it has increased returns.

Investors in Asia-Pacific also showed higher-than-average belief that factor investing could outperform the benchmark, while increasing the transparency in portfolio construction.

The survey polled 200 institutional investors around the world in January, who together represent $5.5trn in assets under management.

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