David Barron


“The big question is are the top 10 stocks today going to be the top 10 stocks in 10 years’ time. If you are expecting a changing of the guard, then a multi-factor product may deliver something superior.” David Barron, Legal & General Investment Management


maximising exposure per unit of active risk, and then implement those exposures cost-efficiently. Part of the big industry debate is around how to build a multi-factor portfolio and combine factors in a single solution. There is just as much research and support for a bottom-up approach as there is for a top-down approach. From an investor’s perspective, I would look at what am I getting for the cost I’m paying, and the additional risk that I am taking, for deviating from the market cap index. We are fans of a bottom-up approach and acknowledge that the correlation between factors can impact the amount of exposure that we harvest, but we also acknowledge that that correlation can change through time. Being able to dynamically adjust the portfolio construction and the exposures that you are taking on with that change in correlation is something that we consider. Scott: Risk is always an interesting word. There are so many risks that things don’t work out the way we thought.


As a trustee, we want to beat the market cap and will pay more to do that. The more that you move away from a market cap strategy to fit your factor strategy, the more you risk that you are doing what you said


16 September 2019 portfolio institutional roundtable: Factor investing


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