Introduction into Multi-Factor Investing

Abstract

Asset managers worldwide face the new market reality: significantly decreased global economic growth, the lowest interest rates and inflation, an increase in asset cross-correlation due to accelerated globalization and spikes of event driven volatility, high assets valuation levels.

In response to market changes the new approaches to asset management have been developed: risk based asset allocation and factor investing. In this introductory document we briefly cover historical evolution of asset management from traditional methods to alternative beta and “pure” alpha strategies. Then we describe each category and analyze it based on our own examples. At the end we outline the new trends and future fields of research in modern asset management and alpha generating strategies.

Keywords: Factor investing, Asset allocation, Asset management, Alternative beta, Smart beta, Alpha sources