Factor Investing

We appointed Northern Trust Asset Management to manage two USD300m factor investing mandates and AQR to manage two USD250m factor investing mandates.

Factor investing involves systematically constructing an alternative to a passive, market capitalisation index by weighting towards companies possessing pre-determined factors. These factors are expected to deliver superior risk-adjusted returns for investors over the long-term.

There are many different factors that investors can choose to weight their holdings towards.

Our factors strategy targets excess returns from systematically investing in value and low-risk stocks. Value investing involves buying stocks which look relatively cheap on fundamental measures with the expectation they revert to normal levels. A simple example of fundamental measures includes price-to-book or price-earnings ratios. The Guardians uses a combination of such metrics. Low-risk investing involves buying stocks that are below average market risk.

There are many reasons why such investing may yield above-market returns for the same risk. These include the fact that many investors are constrained by liquidity, time-horizon or mandate restrictions. For example, value-investing works on average but can underperform in periods of market stress. This may be above the risk tolerance of investors with shorter time horizons. The Guardians has targeted strategies that are consistent with the Fund’s long investment horizon and liquidity profile.


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