Geopolitical risk rises EMEA factor investment

Factor investing is becoming more popular; according to Invesco's 7th annual Global Factor Investing Study, 67% of investors worldwide stated the strategy had helped them control market volatility in the previous year.

The study, which examined the opinions of 68 retail investors and 83 institutional investors who collectively manage $25.4 trillion in assets, found that over the past nine months, investor confidence in factor investing, which focuses on identifying quantifiable traits that explain variations in stock returns, has grown significantly.

The analysis found that demand for fixed income characteristics increased as bond markets had their worst year in decades, bringing an end to the asset class's protracted bull run.

More over 50% of investors said that the present market situation made fixed income factor investing more appealing.

"With the changing landscape for fixed income investments, the need to analyse and risk-manage portfolios through a factor lens has risen substantially. This is especially true in EMEA, where geopolitical risks are being felt strongly ," according to Georg Elsaesser, senior portfolio manager for quantitative strategies at Invesco.

Only 14% of respondents indicated they only focused on investment variables this year, while 54% said they employed both macro and investment aspects.

Government and corporate bonds accounted for the majority of respondents' factor investments (76%) and (75%), respectively, which Invesco claimed indicated the strength and liquidity of these markets as well as the breadth of their product line.

Respondents anticipated that factor-based solutions would perform better in periods of inflation and weak economic development.

Allocations to factors climbed during the course of the year, with 41% of investors reporting increases over the previous year and 39% reporting increases expected for the next months.

Only 1% of allocations to factor have dropped. Value, low volatility, and quality were anticipated to perform well in the upcoming year.

Invesco discovered growing use of ESG investment considerations elsewhere. 72% of respondents noted improved performance as a benefit of factor implementation, and 66%, up 42% from 2018, indicated they thought factors could be utilized to achieve their ESG goals.

The lack of consensus on methodology continues to prevent implementation, nevertheless.


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