- Over 50% of respondents believe the current market environment
makes factor investing in fixed income more attractive
- 41% of respondents have increased allocations to factor
strategies over past 12 months
- Most respondents (55%) are using factor allocations for risk
and performance management
- 80% of institutional and retail respondents adjust their factor
weights through time based on expected performance of factors at
different points of the economic cycle
ATLANTA, Sept. 26,
2022 /PRNewswire/ -- Invesco Ltd., a leading global
asset management firm, today released the findings of its seventh
annual Invesco Global Factor Investing Study. The Study is based on
interviews with 151 institutional and retail factor practitioners
managing over $25.4 trillion in
assets combined.
This year's study found respondents expect factor-based
strategies to outperform in an inflationary environment with slow
economic growth. Respondents also believe the current market
environment makes factor investing in fixed income more attractive
as a better way to manage volatility and diversify portfolios.
"Investors are increasing their use of factor-based strategies
to navigate market volatility and hedge against inflation, and we
believe their commitment to factors will remain strong," said
Mo Haghbin, Chief Commercial Officer
and COO, Invesco Investment Solutions. "Investors are shifting
their philosophy from static allocations to more dynamic approaches
to capture upside and position their portfolio across the economic
cycle."
The study also noted factor allocations are continuing to rise,
with 41% of respondents increasing allocations over the past year
and 39% planning an increase in the next year. In 2022, only 3% of
respondents indicated they planned to decrease factor allocations
in the next 12 months, down from 8% in 2021.
Adoption of a long-term, diversified multi-factor approach has
increased in the past 12 months as global market volatility has
increased. 80% of respondents now adjust factor weights over time,
driven by the varying performance of different factors over the
economic cycle and a desire to balance out exposures across the
portfolio.
Research also indicates an increased demand for fixed income
factors as the 40-year bull run came to a halt. Over 50% of
institutional and retail respondents believe the current market
environment makes factor investing in fixed income more
attractive.
Faith in equity factors rewarded: market turmoil highlights
value of factors in managing risk
Over the past 12 months, spiking inflation and rising interest
rates have reshaped the investment environment, causing respondents
to rethink their factor exposures. 55% of respondents indicated
they were using factors for risk and performance management, up
from 28% four years ago. A majority of respondents (over 80%)
believe their factor allocations have met or exceeded the
performance of their fundamental active strategies, while 64%
indicated their factor allocations met or exceeded performance
verses market-weighted strategies.
As established in last year's study, a multi-factor approach is
now the norm for factor implementation; in the next 12 months,
nearly 40% of respondents expect to increase their factor
allocations in their portfolios.
Respondents looking to fixed income factors for new sources
of return potential
Fixed income factors continued their steady increase in
acceptance this year. This year, 92% of respondents believe
factor-investing can be successfully applied in fixed income, a
significant increase from 61% in 2016.
Fixed income returns are closely tied to fundamental
macroeconomic variables. Respondents applying a systematic approach
to their fixed income portfolios often initially prioritize
traditional macro drivers of return, such as inflation and interest
rates, before later incorporating investment factors such as value.
This year the study found 54% of respondents are using both macro
and investment factors, and only a few (14%) are targeting
investment factors in isolation.
Within fixed income asset classes, respondents are using factor
investing the most in government bonds (76%) and corporate bonds
(75%), reflecting both the depth and liquidity of these markets as
well as the number of products available. Over the next five years
there is anticipation that factor investing will spread to other
parts of the fixed income asset class. A majority of respondents
(71%) believe they will use high yield bonds as part of their fixed
income factor exposure in the next five years.
"Adoption of factor investing in fixed income continues to grow
as we shift to a rising interest rate environment, which presents
challenges to the long-held orthodoxy of balanced, diversified
portfolios," continued Mr. Haghbin. "As we enter a period of
tightening monetary policy, higher inflation, and slower potential
economic growth, clients are looking to expand the toolkit and find
opportunities to generate income while managing interest rate risk
with better precision."
Adoption of a long-term diversified multi-factor approach is
on the rise
83% of respondents said they adjusted their factor weights based
on expected performance of factors at different points of the
economic cycle, while nearly 70% did so to balance factor exposures
to their overall portfolio.
The frequency of respondents reviewing and changing their factor
definitions is changing, as 41% stated they rarely (every 3-5
years) change their factor definitions, which is down from 66% in
2021. Currently, 43% of respondents are changing their factor
definitions frequently (every 1-3 years), which is up from 16% in
2021.
Over 75% of respondents cited the need to incorporate the latest
data as the most important reason they change their factor
definitions, while 61% change their factor definitions to better
capture factors, and 36% do so to avoid identified market
pitfalls.
50% of respondents are making use of factor ETFs to implement
their factor strategies, rising to 66% amongst retail respondents.
Most respondents (55%) make use of factor ETFs both strategically
and tactically with respondents noting selection decisions for
factor products are driven by their use-case.
Factor concentration/purity was ranked the most important
criteria at 72% of investor's assessment of selecting a factor
product, followed by management team/experience (66%) and outlined
methodology and documentation and performance relative to
market-cap benchmarks (64%).
"Our clients are increasingly using factor strategies to control
exposure to different sources of risk in a challenging and volatile
market. It's not a surprise that demand has increased, and we
believe investors are going to remain committed to factors in the
long term," concluded Mr. Haghbin.
To view Invesco's full seventh annual, 2022 Invesco Global
Factor Investing Study please click here.
Sample and Methodology
The fieldwork for this study was conducted by NMG Consulting, a
leader in research, analytics and insights for the investment,
asset management, wealth management, insurance and reinsurance
markets. Invesco chose to engage an independent firm to ensure
impartial survey results. Key components of the methodology
include:
- A focus on the key decision makers conducting interviews using
experienced consultants and offering market insights
- In-depth (typically one hour) face-to-face interviews using a
structured questionnaire to ensure quantitative as well as
qualitative analytics were collected
- Results interpreted by NMG's strategy team with relevant
consulting experience in the global asset management sector
In 2022, the seventh year of the study, we conducted interviews
with 151 different pension funds, insurers, sovereign investors,
asset consultants, wealth managers and private banks globally.
Together these investors are responsible for managing $25.4 trillion in assets (as of March 31, 2022).
In this year's study, all respondents were 'factor users',
defined as any respondent investing in a factor product across
their entire portfolio and/or using factors to monitor exposures.
We deliberately targeted a mix of investor profiles across multiple
markets, with a preference for larger and more experienced factor
users. The breakdown of the 2022 interview sample by investor
segment and geographic region is displayed in the full study.
Institutional investors are defined as pension funds (both
defined benefit and defined contribution), sovereign wealth funds,
insurers, endowments, and foundations.
Retail investors are defined as discretionary managers or model
portfolio constructors for pools of aggregated retail investor
assets, including discretionary investment teams and fund selectors
at private banks and financial advice providers, as well as
discretionary fund managers serving those intermediaries.
Invesco is not affiliated with NMG Consulting.
About Invesco
Invesco Ltd. is a global independent investment management firm
dedicated to delivering an investment experience that helps people
get more out of life. Our distinctive investment teams deliver a
comprehensive range of active, passive and alternative investment
capabilities. With offices in more than 20 countries, Invesco
managed $1.5 trillion in assets on
behalf of clients worldwide as of June 30,
2021. For more information, visit www.invesco.com.
Important Information
All material presented is compiled from sources believed to be
reliable and current, but accuracy cannot be guaranteed. This
is not to be construed as an offer to buy or sell any financial
instruments and should not be relied upon as the sole factor in an
investment making decision. As with all investments there are
associated inherent risks. This should not be considered a
recommendation to purchase any investment product. This does not
constitute a recommendation of any investment strategy for a
particular investor. Investors should consult a
financial professional before making any investment decisions if
they are uncertain whether an investment is suitable for them.
Please obtain and review all financial material carefully before
investing. Past performance is not indicative of future
results. Diversification does not guarantee a profit or eliminate
the risk of loss. The opinions expressed are those of the author,
are based on current market conditions and are subject to change
without notice. These opinions may differ from those of other
Invesco investment professionals. Invesco Advisers, Inc. is an
investment adviser; it provides investment advisory services to
individual and institutional clients and does not sell
securities.
Media Relations Contact: Gina
Simonis 917-715-8339 Gina.Simonis@invesco.com
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SOURCE Invesco Ltd.