Factor Investing 2 – FaCS or Factors

Factor Investing 2 – FaCS or Factors

Today’s post is the second in a series on factor investing, otherwise known as smart beta.

The story so far

Passive Active Spectrum

Passive Active Spectrum

A couple of weeks ago we took our first look at factor investing, sometimes known as smart beta.

Active vs Passive

Active vs Passive

Here’s what we learned:

  1. Factor investing is the use of a rule other than market-cap weighting to allocate money within a pooled investment fund.
  2. Different observers would place factor investing at different points along the passive / active spectrum.
    • They deviate from market-cap weighted indexes, which now monopolise the term “passive”.
    • But factor funds require no active management from the private investor.
  3. MSCI (our data source for now) currently have six factors:
    • Value
    • Small Size
    • asset classes.
    • But no factor works all of the time so diversification across factors is a good idea.
      • A long time horizon and some kind of timing mechanism (Cyclicality

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