Factor Investing

With over ten years’ experience from factor-based investing and EUR 2.0 billion / GBP 1.8 billion of assets under management (as at 31 December 2018), Storebrand Asset Management is a market leader in Scandinavia, having delivered consistently strong excess returns for our clients.


Investors have traditionally chosen between passive and actively managed funds to gain equity market exposure. More recently, a new approach – factor investing – has grown in popularity. As with actively managed portfolios, factor funds attempt to outperform an underlying benchmark. However, while active managers typically use fundamental analysis to gain a company-specific information advantage, factor funds aim to achieve excess return by identifying and then harvesting factor premiums.
 

Factor portfolio construction

Factor investing – also called smart beta – offers investors exposure to one or more carefully selected factors that are expected, based on past performance, to deliver superior long-term returns. Storebrand’s multifactor strategy targets four factors – value, momentum, size and low volatility – by constructing portfolios of 50-100 companies which share these characteristics (or factor premiums). These single factor portfolios are then combined into the multifactor strategy. We take a conservative approach to factor selection and those we use in our strategies must have a well-documented premium over different time periods, both in academic literature and in practice.
 

Value

Research shows that cheap stocks tend to outperform expensive ones, based on a variety of valuation measures such as price/book, price/earnings or price/cash flow. The value premium, which is widely accepted empirically over time and across countries, can be harvested by being overweight inexpensive stocks and underweight expensive ones relative to the benchmark. Value investing often means going against the mainstream or market view and may result in sustained periods of underperformance.
 

Size

Smaller capitalised companies produce, on average, higher returns than larger ones. There are several reasons for this outperformance, such as compensating investors for their ownership of stocks with relatively higher risk and lower liquidity.
 

Momentum

Investors’ herd mentality and their tendency to overreact to news – both positive and negative – mean that stocks which have delivered better returns than the market typically continue to outperform, and vice versa. Unlike value and size, which offer investors exposure to fundamental factors, momentum is a trend-based investment strategy.
 

Low volatility

Counter to the argument that investors are always compensated for taking increased risk, low volatility stocks are empirically proven to produce greater risk-adjusted returns than those which exhibit high volatility.
 

More information about the Storebrand Global Multifactor LUX


More on our award-winning strategies

Index-based Investing
Sustainable Solutions Portfolios