Factorbased investing considers specific attributes of securities from "summary" of All About Asset Allocation, Second Edition by Richard Ferri
Factor-based investing involves examining specific characteristics of securities that have been shown to affect their performance. Instead of focusing solely on the traditional methods of analyzing investments, such as company fundamentals or market trends, factor-based investing looks at attributes that have been identified as having a significant impact on returns. These attributes, or factors, can include things like company size, value, momentum, volatility, and quality. By considering these specific attributes, investors can create a more diversified portfolio that has the potential to outperform the market over the long term. This approach is based on the idea that by targeting specific factors, investors can take advantage of market inefficiencies and earn higher returns. One of the key benefits of factor-based investing is its simplicity. Instead of trying to predict the future performance of individual securities, investors can focus on these broader factors that have been shown to drive returns over time. This can help to reduce the risk of making costly mistakes and increase the likelihood of achieving long-term investment goals. Factor-based investing also provides clarity by offering a more systematic approach to construc...
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