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Marcus Axthelm and Mo Haghbin | October 21, 2021

2021 Invesco Global Factor Investing Study

What is driving factor investing and investor experiences? Find out by exploring Invesco’s 2021 Global Factor Investing Study.

The 2021 Invesco Global Factor Investing Study continues our research into global factor investing, a form of investing in which securities are chosen based on attributes that have tended to offer favourable risk and return patterns over time.

This year, we surveyed over 130 institutional investors and 111 retail investors in the U.S. that are collectively responsible for managing over $31 trillion USD in assets (as of March 31, 2021) to identify four themes behind the drivers of factor investing, investor experiences, and methods of implementation:

Theme 1: Increasing focus on the potential benefits of ESG (Environmental, Social and Governance) incorporation leads investors toward a factor-based approach

  • Around half of factor investors are using factor investing to help incorporate ESG, driven by the pursuit of enhanced investment performance and control over exposures.
  • Factor investing is seen as more compatible with ESG than a market-weighted approach, but behind fundamental active; despite this, ESG is more likely to be pushing investors toward factor investing than fundamental active.
  • Respondents expressed a widespread belief that ESG can potentially enhance performance, while there is a lack of consensus as to whether ESG itself should be defined as an investment factor.
  • Investor demand for ESG factor products is clear. However, a lack of products and challenges around communication remain.

Theme 2: The rise of factor investing in fixed income continues

  • Investors believe fixed income factor strategies are on par with active in targeting investment factors, but behind active in targeting macro factors.
  • Fixed income factor allocations rise year on year, with investors incorporating both macro and investment factors, aiming for performance in a low-yield market environment.
  • Respondents noted challenges related to a lack of product and technology. Use of fixed income factor ETFs is muted in comparison with equities.

Theme 3: Investors use multi-factor approaches and manage exposures more actively

  • Almost half of factor investors make long-term strategic adjustments to exposures, while 30% make short-run tactical adjustments.
  • Dynamism looks set to accelerate with 41% of respondents expecting to be more dynamic over the next two years.
  • Despite sophisticated implementation of analytics among some factor investors, there is appetite for better tools for monitoring exposures and attributing performance.
  • Use of factor ETFs is accelerating rapidly, driven by the broad range of use cases including tactical allocations as portfolio completion tools.

Theme 4: Factor allocations rise as post-pandemic recovery attracts investors to value

  • Factor allocations are continuing to rise, with 43% of respondents increasing allocations over the past year and 35% planning an increase in the next year, compared to just 8% planning a decrease.
  • This has been partly driven by increased allocations to value, as well as broader adoption of factors across portfolios.

Explore the full 2021 Global Factor Investing Study  (only available in English)

More from Marcus Axthelm and Mo Haghbin

2021 Invesco Global Factor Investing Study
October 21, 2021

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Important information

Image: Mike Harrington / Getty

ESG : Environmental, Social and Governance

Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the simplified prospectus before investing. Copies are available from your advisor or from Invesco Canada Ltd.

Factor investing (as known as smart beta or active quant) is an investment strategy in which securities are chosen based on certain characteristics and attributes that may explain differences in returns. Factor investing represents an alternative and selection index based methodology that seeks to outperform a benchmark or reduce portfolio risk, both in active or passive vehicles. There can be no assurance that performance will be enhanced or risk will be reduced for strategies that seek to provide exposure to certain factors. Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods. Factor investing may underperform cap-weighted benchmarks and increase portfolio risk. There is no assurance that the investment strategies discussed in this material will achieve their investment objectives.

The use of environmental, social and governance factors to exclude certain investments for non-financial reasons may limit market opportunities available to funds not using these criteria. Further, information used to evaluate environmental, social and governance factors may not be readily available, complete or accurate, which could negatively impact the ability to apply environmental, social and governance standards.

Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.