The proliferation of funds has led to the explosion of investment factors, factor analysis and factor investing. Everyone – from fund managers to consultants to investors – is trying to find their edge to succeed in a dynamic, if sometimes chaotic or confusing, investment market. Within the debate of active vs. passive strategies, the determination of investment philosophy, and understanding what is truly driving fund creation and performance, what is the role of factors and how can one benefit?

Style Research discussed this issue at the Factor Investing Forum in London on 16 November 2017. Expert industry practitioners Nick Samuels and Tom Joy joined Style Research COO Peter Hopkins to share their insights.


Tom Joy of Church Commissioners for England

 Tom Joy, ‎Director of Investments at Church Commissioners for England, emphasized the importance of factor analysis in understanding markets, managers, and gaining a deeper understanding of how returns are generated. He compared and contrasted factor investing vs. active investing, and discussed his views on the on the “broken investment chain” between consultants, asset managers, and asset owners due to governance and risk process issues. Tom shared his perspective on why there are only a few exceptional active managers, discussing what it takes to outperform as an active manager, even during cyclical ups and downs.

Nick Samuels of Reddington

Nick Samuels, Director in Redington’s Manager Research team, exposed the importance of factors in fund manager research and selection. Walking through real-world examples, he discussed how his team uses factors across their research process. He showed how they determine if a fund’s factor exposures are in alignment with the investment philosophy, and how they assess consistency of those exposures over time. Mr. Samuels also compared peer funds using factors to set a level playing field. Lastly, he discussed the role of factors in attributing returns.

Peter Hopkins of Style ResearchPeter Hopkins, COO of Style Research, started with a clear statement: “Don’t just read the label!” Peter examined the hidden factor exposures that are often found in multifactor funds, despite their labels or descriptions. With thousands of factors (“the factor jungle”) in the fund world and millions of combinations and variables, focus and clarity are paramount. Peter emphasized the importance of factor selection to understand a fund because there is a vast range of potentially very different outcomes. Whether evaluating a fund or comparing multiple ones, a consistent factor framework of accepted, approachable factors provides reliable, objective analysis.

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