News & Research

In this paper we extend our analysis of how the construction of a factor portfolio, even using the same underlying factor definition, can have substantial impact on the returns the factor generates.

Minimum variance strategies have gained significant traction especially since the global financial crisis. They aim at reducing or minimizing variance, i.e. the square of volatility as measured by standard deviation, or, in this case, price fluctuations of portfolio prices around their mean.

When we refer to factor returns, we mean the return to a long-short portfolio with unit exposure to the factor in question, and no exposure to any other model factor. The portfolio encompasses the model’s investment universe, is rebalanced daily, and has hundreds or thousands of small positions.

Ever since the onset of the financial crisis in 2008, volatility has become a critical aspect for investors to consider, measure and position in their portfolios.

It has been a tough couple months for many managers, especially hedge funds. Some have speculated that there has been a large unwinding of crowded risk-factor positions. We do not see that in our factor returns, and instead propose a few other possible culprits.

Axioma and CS HOLT have collaborated to create a smart beta index — the Credit Suisse HOLT © Global Multi-Factor Portfolio — that united the stock selection prowess of CS HOLT with Axioma’s portfolio construction and risk model expertise. In this paper, we highlight three key principles that drove the process to create this portfolio.

Our new series of papers extends our earlier work looking at the impact of constraints on optimized factor portfolios. The current analysis examines global developed-market portfolios constructed to tilt on Low Volatility.

Our new series of papers extends our earlier work looking at the impact of constraints on optimized factor portfolios. The current analysis examines global developed-market portfolios constructed to tilt on Momentum.

Our new series of papers extends our earlier work looking at the impact of constraints on optimized factor portfolios. The current analysis examines global developed-market portfolios constructed to tilt on Value.

We evaluate the investment performance of ESG, paying particular attention to recent performance and highlighting the difference between ESG scores that overlap with traditional risk model factors and those that don’t. Our analysis indicates that, in general, increasing exposure to ESG rarely underperforms the market, and often outperforms the market, especially during the last few years.

This is the second paper in a series of looking at portfolio construction methodologies for designing style factor portfolios in the Asia-Pacific region written by Olivier d’Assier, Axioma’s Head of Applied Research for APAC.

In this paper, Olivier d’Assier, Axioma’s Head of Applied Research for APAC, takes a close look at the compromises involved in constructing a viable smart beta product. In his analysis, Olivier focuses on the key portfolio construction issue of how to balance a desire for target-factor purity with a goal of achieving a high exposure to the target factor. Can we have both?