Tailoring Multi-Asset Multi-Factor Strategies

Abstract

To sharpen the top-down allocation perspective of their investments, investors are keen to identify and manage the most salient drivers of risk and return. For many years, the focus was on traditional market risks, such as equity, duration or credit risk. This framework can be considerably advanced when examining a given investment through the factor investing lens, which accounts for style factors, such as carry, value, momentum and quality. We put forward a variety of approaches, ranging from the traditional multi-asset allocation to factor-based tail-hedging, factor completion and a fully diversified multi-asset multi-factor proposition.

Keywords: Style Factors, Factor Investing, Factor Completion, Maximum Diversification, Risk Parity

JEL Classification: G11, D81