More multi-factor strategies, please
Author: Mark Stacey
November 7, 2018
It might be too early to consider quantitative investing as “mainstream,” but a recent survey commissioned by AGF Investments Inc. shows it is becoming much more integral to institutional investors in Canada and the United States.
Of those polled earlier this year, 65% said they now include “quant” strategies in their portfolios with most of those who do saying they play a very important (32%) or somewhat important (53%) part in their overall holdings. At the same time, one in four surveyed want to further increase the emphasis paid to quantitative strategies in the future versus just 1% who want to de-emphasize their importance.
Respondents listed a number of advantages related to a quantitative approach, but diversification (19%) and consistency (13%) were two of the most common benefits, with risk management (11%) and consistent returns (8%) not too far behind.
The study also highlighted a growing affinity towards factor-based quantitative strategies and, in particular, multi-factor approaches that are actively-managed. In fact, 34% of those polled said they want to increase exposure to actively-managed multi-factor strategies, but just 14% are planning to beef up their emphasis towards actively-managed single-factor strategies.
In addition, those with exposure to factor-based strategies said they prefer a strategic/long term approach over a tactical or timing approach to factor allocation. And when asked to name the advantages of a factor-based approach, the most popular responses included diversification (23%), better performance (18%), flexibility (14%) and risk management.
Other findings from the survey, meanwhile, suggest more education around these strategies is required. Smart beta, for instance, is often used by respondents interchangeably with factor-based investing, but is really just a rules-based mechanism for delivering it.
Being long-time quants ourselves, much of these results have confirmed what we are seeing first hand in our conversations with investors. But the survey is also a good reminder that more can be done to help explain the important role quantitative strategies can play in a diversified portfolio.
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Mark Stacey is a senior vice president, head of portfolio management & co-chief investment officer at Highstreet Asset Management Inc. He is a regular contributor to the AGF Perspectives blog.
AGFiQ Asset Management (AGFiQ) is a collaboration of investment professionals from Highstreet Asset Management Inc. (HSAM), a Canadian registered portfolio manager, and of FFCM, LLC (FFCM), a U.S. registered adviser. This collaboration makes up the quantitative investment team
The survey referenced was conducted by the Gandalf Group and was commissioned by AGF Investments Inc. Findings are based on telephone surveys with 88 institutional investors in the U.S. & Canada that took place in two waves between March 26 and May 7, 2018; and June 13 and July 4, 2018.
Commentaries contained herein are provided as a general source of information based on information available as of Oct 11, 2018 and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Investors are expected to obtain professional investment advice.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
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Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
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Written by
Mark Stacey, MBA, CFA®
Senior Vice-President, Co-CIO AGFiQ Quantitative Investing, Head of Portfolio Management
AGF Investments Inc.