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Factor Investing Hits A Hockey Stick

Posted in Insights

Factor investing has been around for more than half a century, but for the majority of that time has been driven by academic research. There haven’t been many investors using factor-based strategies in practice yet, but new research hints that we’re hitting a boiling point where that is starting to change.

Invesco, a leading asset manager that has more than 30 years of experience in factor investing, recently published its third annual Global Factor Investing Study. To compile this report, the firm took a deep-dive through more than 300 interviews with institutional and wholesale investors.

Industry-wide, Invesco estimates that about half of institutional investors have taken up a factor strategy, and data from its research sheds light on the speed of that adoption. There seems to have been a tipping point in 2015, the year that half of respondents said they began adopting factor investing. That’s shows a significant jump from the 15 percent of respondents who said they used factor-based strategies prior to 2010, and just over 30 percent who started between 2010 and 2014.

While the trend curve of adoption is starting to shoot upwards like a hockey stick, data suggests that most firms are still in an exploratory phase. Of the 300 investors surveyed, 80 percent said that factor strategies represent less than 20 percent of equity and fixed income allocations.

However, this is just the beginning. Adoption of factor investing is spreading among firms, and once they start incorporating factor-based strategies, the propensity to incorporate them into overall investment goals increases, according to the study.

So what’s holding firms back from getting started?

According to the report, “the most significant barrier is (and has always been) internal capability. This is in itself important because it demonstrates that investors see factor investing as a distinct competency requiring specific rather than generalist expertise from elsewhere in the internal team.”

Being able to work with and derive value from massive amounts of data seems like a daunting task that requires teams of engineers and data scientist. But that’s the exact challenge that Elsen was founded to solve.

Elsen’s platform-as-a-service, the Elsen nPlatform, gives asset managers a way to use non-concordant data and modern technology to generate alpha, construct new products, and optimize data vendors. It allows any financial professional – including people in investment, research and analytics roles – to transform the way they work by letting them use data to guide investment decisions without having to rely on teams of expert programmers.

Elsen nPlatform erases the barriers that most firms anticipate – or fear – when they start thinking about factor investing or other data-driven strategies. In a matter of weeks, it can help firms implement modern, data-driven strategies for finding alpha – regardless of their team’s level of technical sophistication.

To see Elsen nPlatform in action, check out Thomson Reuters QA Point Powered by Elsen, or contact us to see how Elsen nPlatform can power your investment strategies.

Andrew is Elsen’s resident expert in all things data and data technology. He takes his understanding of clients’ data needs and implements them into the platform, designs and approves the analytics in the engine, and trains users on advanced features.