Excess Returns, Ep. 23: The Challenges of Multi-Factor Investing

The basic theory of multi-factor investing is pretty simple. It has been widely proven that factors like value and momentum can outperform the market over long periods of time. But no reward comes without risk. In this case, the risk is the significant periods of underperformance that the factors can endure. That is where multi-factor investing comes in. It offers investors an opportunity to blend factors together to reduce risk and smooth out those bad periods.

But building a multi-factor investment strategy can be much more difficult than it seems and requires a series of decisions that can have a significant impact on the end result. In this episode, we look at multi-factor investing and the important factors to keep in mind when building a multi-factor portfolio.

We discuss:

  • The risk management benefits of multi-factor investing
  • The two major approaches to building multi-factor portfolios
  • The importance of proper portfolio construction

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