Factor Investing: Get Your Exposures Right

Presented by Raul Leote de Carvalho (BNP Paribas)

Date: Thursday 30th July 2020

Time: 14.00 BST


Webinar Overview:

Interest in factor equity investing has been growing over recent years. However, multi-factor investing is no panacea. How to build the optimal equity multi-factor portfolio is a difficult and highly non-trivial question. We can actually show that naively built multi-factor portfolios are very likely to include exposures to factors other than those promised by the portfolio managers responsible for their management. Raul will show that optimal multi-factor portfolios can be constructed from mean–variance optimization using expected stock returns as inputs, for as long as these are built in a robust way from information about the targeted factors. He propose a framework to build those robust expected stock returns and show that the targeted factor exposures are retained by the portfolios both before and after applying realistic constraints, e.g. long only. Moreover, he show’s that this framework minimizes exposures to all factors orthogonal to those being targeted. He will illustrate the framework with examples.