Pursuing Multiple Premiums: Combination vs. Integration
14 Pages Posted: 26 Feb 2021 Last revised: 4 Feb 2022
Date Written: February 26, 2021
Abstract
This paper compares two different approaches to pursue multiple premiums: a combination approach (market portfolio plus factor portfolios) and a fully integrated approach. We evaluate the two approaches via multiple lenses: pursuit of higher expected returns, distribution of over- and underweights, turnover, and costs. Our analysis shows the integrated approach can lead to greater reliability of outperformance, better risk control, and lower costs. These benefits are critical to an efficient pursuit of multiple premiums and cannot be replicated through combination approaches.
Keywords: factor investing, premium integration, multi-factor portfolios, portfolio design, asset allocation
JEL Classification: G11
Suggested Citation: Suggested Citation