Yvette Murphy
“It’s no surprise that multi-factor equity strategies have lagged their market cap benchmark in the past couple of years.” Yvette Murphy, State Street Global Advisors
Portfolio Institutional: Why are none of your schemes using factor investing, Andy? Andy Scott: There are lots of things affecting private sector defined benefit (DB) schemes at the moment, such as hedging and cash-flow considerations.
I am well informed for a trustee but, like liability-driven investing (LDI), getting trustees to understand that something is a good idea and that they should take it up is the challenge. I do have a defined contribution (DC) scheme that is interested because there’s more of an equity alloca- tion involved, but I am still to appoint a factor investing manager. Andy Peach: Trustees have had a lot on their plate. LDI and diversified growth portfolios have been big things and now trustees are getting around to thinking about their residual equity allocation. Compared to LDI, which can be a complex topic, factor investing’s quite a simple story when you get to the nub of it and there are different benefits to different investors. If a client is investing passively, they could benefit from factor investing’s diversification and better risk-adjusted returns over the long term. If they are coming from an active starting point, quite often with a shrinking active equity portfolio, the question is, can trustees justify the governance spend on what used to be a big part of a portfolio but is probably only 5% or 10% now. Factor investing is a potential alternative to consider.
6 September 2019 portfolio institutional roundtable: Factor investing
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