Factor Investing Explained
Factor investing decomposes returns into persistent risk premia such as value, quality, momentum, and size.
Core Factor Concepts
- Factors explain common return patterns across groups of securities.
- Portfolios can become unintentionally concentrated in one factor.
- Factor regimes can rotate and impact relative performance.
Portfolio Application
- Track factor concentration alongside sector concentration.
- Use diversified factor exposure to reduce regime fragility.
- Optimize allocation while respecting factor risk limits.