from a different perspective. If you look at the global peer group of asset managers, this is the only strat- egy that has a negative correlation in terms of outperformance versus fundamental managers. We do not claim that it’s better. It is a different style of harvesting alpha and therefore a nice diversifica- tion for your portfolio.
PI: How have factor strategies performed in recent years? Have they done what it says on the tin?
Leeuwen: We started to blend fixed income into traditional portfolios in 2005 and launched our first dedicated product in 2012. If we look at the past three to five years’ real-life track records, the strategy has performed as expected based on the academic research. The challenge is in how to implement factors in fixed income. You have sparse liquidity and high transac- tion costs. For me, the challenge is not coming up with research with information ratios of one or one- and-a-half, I can easily come up with nice stories. For us, it’s important to do realistic back-testing and build real-life track records, to bring the stories to life. Scott: Is your mandate purely to get alpha and you are giving it unconstrained, or do you have parameters around what you are doing and how you achieve it? Leeuwen: Our preferred way to implement factors in fixed income is to look at the global credit space, where the aim is to outperform a global index. There is no interest rate or currency exposure, the objec- tive is purely to take credit exposure in a different way than a fundamental manager would. What is important for a strategy like this is that you need to have a large starting universe. It is difficult to apply factors to sterling credit because such a strategy has a lot of idiosyncratic risk. You need to have a bigger spectrum; global credit is perfect for that. From this broad base you can tailor to the needs of individual clients.
8 September 2019 portfolio institutional roundtable: Factor investing
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