Institutional and wholesale investors are increasingly adopting factor-based allocations as part of their portfolios, according to the third annual Invesco Global Factor Investing Study.
The trend is expected to continue with three fifths of investors overall (64 per cent of institutional and 56 per cent of wholesale investors) planning on increasing factor allocations by 2021.
Over 300 wholesale and institutional investors with assets under management (AUM) totalling more than $19 trillion (Dh70 trillion) were interviewed for this study.
The key driver for further increases in allocations by investors is, by some distance, better net performance, followed by cost-effectiveness and two dimensions of risk reduction.
“Factor investing is growing on a broad scale across all major regions, including the Middle East, and the basic arguments for increasing usage of factor-based approaches also resonate in the Middle East. Factor strategies, still usually applied to equity markets, are increasingly being used with the intention to enhance returns, manage risks and, to a lesser extent, reduce costs,” Georg Elsaesser, senior portfolio manager, quantitative strategies at Invesco told Gulf News.
For the first time the study looked at how investors prefer to implement their factor strategies. For smart beta strategies, exchange traded vehicles such as ETFs are clearly the preferred vehicle of factor investors (51 per cent), followed at a distance by segregated mandates (23 per cent) and other types of pooled vehicles (6 per cent).
European smart beta investors are avid users of ETFs and similar products (55 per cent), as are North American users of smart beta strategies (59 per cent).
Asia Pacific investors on the other hand currently lean towards segregated mandates (63 per cent) reflecting the larger sizes of their portfolios and factor allocations; and less local availability of exchange-traded products.