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How to implement factor investing in your portfolio

More and more investors are realising the advantages of factor investing and starting to implement its lessons not just as an afterthought, but as a top-down element of the overall investment strategy. A large percentage of pension funds still have a cover ratio that barely exceeds the minimum requirement and face funding issues due to the ageing demographics. To meet liabilities, pension funds are looking for higher returns while at the same time have less appetite for risk. Is factor investing the solution for the seemingly opposing challenges of risk and return?
Recorded May 26 2015 58 mins
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Presented by
Joop Huij, Head of Factor Investing Research
Presentation preview: How to implement factor investing in your portfolio

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  • Real Assets: Investment Strategies for Insurance Asset Owners May 26 2017 1:00 pm UTC 75 mins
    Patrick Liedtke, BlackRock; Eugene Demetriou, Columbia Threadneedle Investments; Andrew Epsom, Mercer; Martin Hurst, IPE
    This is the third in a series of three webcasts looking at Solvency II from the point of view of the insurance company CIO in which we address the investment management opportunities in real assets for insurance asset owners.

    An expert panel debate with:
    - Patrick Liedtke, Managing Director Head of the Financial Institutions Group (FIG) for EMEA, BlackRock
    - Eugene Demetriou, Head of Insurance Solutions at Columbia Threadneedle Investments
    - Andrew Epsom, Principal, Insurance Group, Europe, Mercer
    - Moderator: Martin Hurst, IPE
  • Mastering your currency risk management May 16 2017 2:00 pm UTC 75 mins
    Marc Tuehl, Global Head of FX Overlay & Nobby Clark, Managing Director - Client Solutions Group, HSBC; Brendan Maton, IPE
    Currency volatility can have a significant impact on the risk /return profile of a diversified investment portfolio. Inefficiencies in implementing and managing a currency hedging strategy on a cyclical basis could also result in negative impacts.

    Measuring exposure to foreign currencies, monitoring any changes and managing this risk on a continuous basis raises various considerations. Not only do you need to define your investment and risk objectives, but also to consider operational risks, cost constraints and regulatory compliance. It is equally important to know the market and assess risk and opportunities specific to the global foreign exchange market.
    Our currency experts can help you find the right balance between risk and return, guide you on how to establish a robust currency management programme and how to manage related costs in an efficient manner.

    At HSBC, we can help you address these challenges with an innovative and tailored approach to outsourcing currency hedging activities. This allows financial institutions, both asset managers and institutional investors, to focus on core investment activities.

    It is time to re-think your currency management strategy. Find out more.
  • Investing in Alternative Fixed Income for Insurance Asset Owners Apr 26 2017 1:00 pm UTC 75 mins
    Ajeet Manjrekar, PSolve; Etienne Comon, Goldman Sachs Asset Management; Michael Craig, Invesco Fixed Income; Martin Hurst, IP
    This is the second in a series of three webcasts looking at Solvency II from the point of view of the insurance company CIO.


    Rates are low, spreads are tight, and Solvency II is constraining the ability of insurers to pursue the credit investment strategies employed in the past (such as securitisations)

    Economic backdrop
    Where are we in the credit cycle, and what it means for the most attractive maturity segments on the credit curve, sector biases, and preference for strong covenants and/or senior secured loans

    What strategies work best under Solvency II
    Outright loans tend to be more attractive than securitisations
    Short-dated credit is more attractive than long-dated credit
    Sub-investment grade can be attractive

    ALM perspective
    For life companies, duration management is key. Alternative FI (e.g. loans) often bear a floating rate, which needs to be swapped to match liabilities
    One comment about the matching adjustment for annuity writers

    Brief review of the main ‘alternative credit’ markets: (with a brief comment about their attractiveness)
    Corporate loans – senior and mezzanine
    Real estate loans
    Infrastructure debt

    How can insurers invest?
    Funds vs. direct holdings
    What do insurers need to ensure compliance with Solvency II (reporting), and capital efficiency?
  • The Investment Management of Insurance Assets under Solvency II Recorded: Mar 28 2017 60 mins
    Gareth Mee, EY; James Hughes, Aberdeen Solutions; Euan MacLaren, NGAM UK; Martin Hurst, IPE
    This is the first in a series of three webcasts looking at Solvency II from the point of view of the insurance company CIO.

    The second and third will focus on alternative fixed income and real assets respectively.

    How suitable - or otherwise - are the current capital charges and what can we expect from the 2018 review?

    Solvency II was conceived in a normal yield environment; that, of course has changed and this is one reason for the review planned for 2018. Insurers are interested in the agreed thinking of what these should be and the prospects of them being amended to a level more representative of the associated risk. What is reasonable and what can we expect?

    What might the political obstacles be to, say, making a distinction for capital charge purposes between Spanish and UK government bonds?

    The impact of regulation on investment strategy

    We will explore the relative impact of matching adjustment, volatility adjustment and transitionals and the impact on investment strategy as a result.


    How are insurance asset owners coping with the new regulation generally? Can we expect consolidation among insurance asset owners because of the increased regulatory burden?

    Use of internal models can lead to lower capital requirements, but they are very expensive to create, and are thus likely to be the preserve of the larger insurance companies.

    Smaller firms might club together to enable them to access certain types of investment, and might ultimately see acquisition by a larger firm as the only way both to do this on a consistent basis and manage the increased regulatory burden. Furthermore, a common regime across Europe should make it easier for potential buyers to assess exactly what they are buying.

    Other regulatory factors

    What will be the impact on investment regulation of Brexit on UK regulation, and on the investment management of insurance assets?

    What can we learn from other regulatory regimes from an investment standpoint?
  • ‘Sourcing’ Returns in Private Assets Recorded: Mar 8 2017 61 mins
    Adam Wheeler, Jonathan Rotolo, Patrick Manseau and Nick Pink, Barings; Brendan Maton, IPE
    As investors continue to migrate toward private assets in search of potential benefits like low volatility, differentiated sources of income and uncorrelated returns, they are faced with an increasingly broad universe from which to choose.

    As they wade through a sea of private equity and debt options, it is becoming apparent to many investors that all private assets are not created equal.

    Increasingly, origination – an investment manager’s ability to source a large quantity of high-quality investment opportunities – is becoming the difference between underperformance and outperformance.

    In this webinar, we will discuss the important role that origination plays when it comes to achieving attractive long-term, risk-adjusted returns and income streams in:
    - Private Credit
    - Private Equity
    - Infrastructure Debt
    - Private Real Estate Investments
  • Factor-based investing: Fixing a broken portfolio Recorded: Nov 8 2016 69 mins
    MIchael Hunstad and Andrew Knell, Northern Trust; Moderator Brendan Maton, IPE
    We take a fresh look at factor-based investing, examining how investors can enhance portfolio construction through a more efficient and intentional approach to sourcing potential excess returns.

    Given the challenging return environment so far this year, and the outlook for more muted returns than we've seen recently, it is imperative that portfolios are constructed efficiently. That means sourcing factor returns (which our research identifies as the main driver of excess returns) more effectively. It also means consolidating exposure to only the highest conviction opportunities.

    In this webinar we will explore:

    - The persistence of factor returns
    - Analysis and deconstruction of factor exposures in live portfolios
    - Ways to construct or pivot your portfolio for better outcomes
  • Addressing the liquidity management conundrum Recorded: Oct 18 2016 64 mins
    Mark Austin (Northern Trust), Kabari Bhattacharya (EY), Steve Irwin (Northern Trust), Brendan Maton
    Practical steps to manage and understand your liquidity requirements

    Liquidity is starting to become a significant issue for institutional investors. The impact of a difficult mix of market trends, a sustained low interest rate environment and the unintended consequences of certain regulations are all helping to make cash an increasingly problematic asset class to deal with.

    Whether seeing to obtain a return on your un-invested cash or liquidity to support investments, the environment is only likely to get more challenging.

    The webcast will:

    - Share examples of the different techniques which a range of institutional investors are employing to address this liquidity conundrum
    - Shed light on emerging techniques such as portfolio stress-testing and liquidity budgeting
    - Provide practical insights into how you can ensure a balance of security, liquidity, yield and operating efficiency
  • Emerging Market Debt: Diversification and Yield Recorded: Oct 4 2016 61 mins
    Nicholas Hardingham, Franklin Templeton Investments; Brendan Maton, IPE (moderator)
    Investors increasingly are looking outside traditional government bonds in order to generate acceptable yield in what is a historical low-yielding environment.
    Emerging Market Debt (EMD) has been a significant beneficiary of this reallocation. In spite of this, yields for EMD remain significantly elevated in comparison to their developed market peers, and in line with their longer term historical averages.
    Much of this capital has been placed into more traditional EM issuers which in itself concentrates investors’ risks. Looking at benchmarks, the most consistent and superior long-term risk/reward outcomes in euro terms have tended to be generated by a blended allocation to hard currency, local currency and corporate EMD.
    Given the significant differences in correlation of hard, local and corporate EMD versus traditional fixed income, this active and blended approach could provide investors with diversification from core fixed income holdings whilst capturing the higher yields on offer.
  • Understanding and Managing Currency Risk Recorded: Sep 14 2016 68 mins
    James Webb, Global Head of Business Development of Currency Administration; Samarjit Shankar, Managing Director, Senior Globa
    Heightened volatility in the foreign exchange ("FX") markets has increased the level of risk that companies face. Managing currency exposures inherent in the globally diversified portfolios is now front and center for many firms, including alternative fund managers as a topic of interest, particularly among oversight boards with fiduciary responsibility.

    BNY Mellon’s Currency Administration group provides an outsourced passive currency hedging service that helps companies manage the currency risk of their international portfolios. In this seminar we will discuss how hedge programs may help reduce the operational and financial risk of foreign currency exposures.

    - Currency Administration
    - Market Update
  • Building better core:Integrating factors in low tracking error equity portfolios Recorded: Jul 7 2016 52 mins
    Michael Strating, Managing Director, Head of Quantitative Equities; Wilma de Groot, CFA, Director, Portfolio Manager; Robeco
    Institutional investors are increasingly searching for new ways to add value to equity portfolios, without taking on unnecessary risk.

    Curious how we create a balanced combination of factors aimed at consistently outperforming a benchmark with controlled tracking error?

    You are invited to join Michael Strating (Head of the Quantitative Equities team) and Wilma de Groot (Portfolio Manager Quantitative Equities) who will discuss how low tracking error multi-factor approach can add value, without affecting your risk budget.
  • Smart Beta & Low Carbon Recorded: Jun 21 2016 70 mins
    Eric Shirbini, Global Product Specialist with ERI Scientific Beta; Moderator, Brendan Maton
    EDHEC Risk Institute has been conducting research for several years on the possibility of reconciling financial and environmental performance. The launch of a new series of low carbon indices by ERI Scientific Beta, the smart beta index provider set up by EDHEC Risk Institute in 2012, marks the practical realisation of these research efforts and represents an important moment for responsible finance, because the results of the research undertaken will provide institutional investors with smart beta indices that can reduce the carbon footprint of their equity investments by more than 80%, while at the same time outperforming traditional market indices and being able to create more than 50% additional value in the medium term.
    EDHEC Risk Institute's approach can be distinguished from numerous approaches that, over the long term, hope to outperform the stock markets through the higher returns of shares in firms that have a better carbon footprint, because these firms are supposedly less affected by the increasing cost of fossil fuels and the tons of carbon emitted, but that, in the short and medium term, aim to produce performance that is fairly similar to that of traditional stock market indices.
    •Topics covered include:
    •The limits of green stock picking
    •How to perform financially whilst reducing the carbon footprint
    •Presentation of Scientific Beta Low Carbon Multi-Beta Multi-Strategy Indices
  • From Smart Beta Products to Smart Beta Solutions Recorded: May 3 2016 67 mins
    Eric Shirbini, Global Product Specialist with ERI Scientific Beta; Brendan Maton, moderator
    Smart beta product offerings have proliferated over the past decade, offering investors an ample choice of different factors and different weighting schemes to select from for a relevant smart beta index. However, in addition to the question of selecting a suitable index as a standalone investment, the question of combining different smart beta strategies naturally arises in the context of an extensive range of smart beta offerings.
    The webinar will address the issue of combining several smart beta strategies, and clarifies the conceptual underpinnings and relevant questions arising when considering smart beta index combinations.
    Topics covered include:
    •How to include investors’ goals in the construction of smart beta solutions
    •Smart beta as a solution for the replacement of the active benchmarked manager: How to manage the relative risk to cap-weighted benchmarks with smart beta risk allocation
    •Smart beta as a strategic benchmark
    •How to manage the absolute risk of smart beta
  • Pension de-risking: practical steps for supporting transactions Recorded: Apr 12 2016 65 mins
    Mark Austin (Northern Trust), Tom Seecharan (KPMG), Brendan Maton
    As a means of helping ease the burden of pension liabilities, de-risking transactions remain high on the agendas of corporate sponsors and trustees.

    When considering de-risking, principal focus is often justifiably spent on identifying the correct solution for the best price. However, other factors also deserve similar focus – transactions such as pension buy-ins or the use of longevity swaps often involve considerable complexity, with the resulting collateral structures persisting long after deal completion.

    We invite you to join this webinar, in which we will explore these issues further. After assessing current trends in de-risking, we will focus on how three specific types of transaction – the collateralised buy-in, the use of longevity reinsurance or swaps, and the trapped surplus vehicle – can be supported.

    Though this session, we aim to equip pension managers, trustees and corporate sponsors with a further understanding of the timeframes involved in these transactions – and share experiences of how deals have been successfully executed.
  • Factor Investing: It works for credits too Recorded: Nov 26 2015 60 mins
    Patrick Houweling, PhD, Executive Director and Jeroen van Zundert, Researcher at Robeco
    There is extensive academic research that confirms the existence of factor premiums. Much of the conversation to date has been about factor investing in equity markets. Many of the explanations that apply to equities are also relevant to corporate bonds.

    We invite you to join our webcast with Patrick Houweling and Jeroen van Zundert from Robeco who will share their research findings and insights into this approach to investing in credits.

    Constructing your portfolio in a disciplined way to gain exposure to Low Risk, Value, Momentum and Size factors can help to achieve better risk-adjusted returns for your portfolio, with volatility similar to the index.
  • Harvesting Alpha Through Multi-factor Indexes Recorded: Oct 14 2015 64 mins
    Brendan Maton, Brett Hammond
    Pension funds seeking higher risk-adjusted returns at lower costs, wealth managers responding to regulation and asset managers increasingly have been asking – “how can we harvest alpha using factor indexes?”

    In 2014, Brett Hammond, Managing Director and Head of Multi-Asset Class Applied Research, and fellow researchers from MSCI, co-authored an insightful paper demonstrating how up to 80% of alpha comes from exposure to factors. This paper won the index research industry’s prestigious William F Sharpe and Bernstein Fabozzi awards, and made a significant contribution to advancing the understanding of factors.

    You are invited to join this webcast where Brett Hammond will discuss how multi-factor indexes can be used to harvest alpha. A range of approaches will be covered with a special focus on the MSCI Diversified Multi-Factor Index – a truly innovative, “all-weather” index that has demonstrated an ability (back tested) to deliver market-cap-index-beating, risk-adjusted returns.
  • Long-Term Factor Investing - Are you getting what you asked for? Recorded: Sep 30 2015 67 mins
    Brendan Maton, Andrew Knell, Jordan Dekhayser
    The market is awash with factor-based investing methodologies and solutions - but are you really getting the factor exposure you desire in your portfolio?

    While recent market volatility has brought attention to this issue investors should take a long-term view and develop a framework that is not overly influenced by short-term market noise.

    From understanding individual factors and their performance cycles through selecting specific strategies, strategically implementing a factor based approach can be a daunting task. Furthermore given the disparity of returns from seemingly similar 'Smart Beta' strategies, the complexity increases dramatically.

    Let us guide you through the white noise of factor investing and provide you with insights on a number factor based topics that we’ve recently investigated.
  • Opportunities in Emerging Markets Debt Recorded: Sep 10 2015 58 mins
    Brendan Maton, Dr. Ricardo Adrogué, Cem Karacadag, Natalia Krol
    Join Babson's emerging markets fixed income portfolio managers to discuss how the macroeconomic environment is impacting the short-term and long-term trends driving emerging markets debt.

    Dr. Ricardo Adrogué, Babson’s Head of Emerging Markets Debt, Cem Karacadag, Emerging Markets Sovereign Debt portfolio manager, and Natalia Krol, a credit analyst with the Emerging Markets Corporate team, will provide insights into their respective asset classes and discuss how Babson is seeking value in today’s markets.

    Dr. Ricardo Adrogué is Head of Babson's Emerging Markets Debt Group. He is also lead portfolio manager for the firm's Emerging Markets Local Debt strategy, and co-portfolio manager for the firm's Emerging Markets Sovereign Hard Currency Debt, Blended Total Return Debt Strategy and Short Duration Bond Strategies. Ricardo holds a B.A. in Economics from the Universidad Católica Argentina, an M.A. in Economics and a Ph.D. from the University of California, Los Angeles.

    Cem Karacadag is co-manager of Babson’s Emerging Markets Sovereign Debt strategy and backup manager for the firm’s Local Debt strategy. Cem has 20 years of industry experience that has encompassed sovereign credit analysis, macroeconomic policy research and advice, and emerging markets fixed income strategy. Cem holds a B.A. in Economics from Tufts University and an M.A. in International Economics and European Studies from Johns Hopkins University.

    Natalia Krol is a credit analyst with Babson’s Emerging Markets Corporate team in London, focusing on CEEMEA and Asia corporates. Prior to joining the firm in 2014, Natalia spent 3 years at Schroders in London, covering resources and capital goods sectors across EM, high yield and investment grade. Between 2002-2010, Natalia was a European high yield analyst at Barclays Capital in London. Natalia holds a MSc in Accounting and Finance from London School of Economics and a BSs in International Economics from Plekhanov Russian Economic Academy.
  • Choosing the Factor: Not Which But When Recorded: Jun 24 2015 65 mins
    Brendan Maton (IPE), Mike Hunstad, Meggan Friedman
    Investors interested in reaping the benefits of factor-based investing in their portfolios have long believed the ultimate question to be, “Which factor should I choose?” Our most recent research shows, however, that investors would be better served to ask, “When should I favour each factor?” Our research also suggests that your investment horizon, rather than the timing of incorporating factor based strategies, is key to meeting your objectives.
  • Managing Climate Risk with Low Carbon Indexes Recorded: Jun 8 2015 67 mins
    Brendan Maton
    As the global economy copes with the unpredictable challenges of climate change, institutional investors are exploring the potential impact of these changes on financial assets. With recent announcements by the Financial Stability Board in Basel and the Bank of England to examine the risks posed by ‘Stranded Assets’, more investors are calculating their exposure to high carbon assets and looking for ways to diversify into low or no carbon alternatives.

    There are a growing number of options available to institutional investors. Some Asset Owners have announced plans to divest from high carbon assets, while others have looked to low carbon indexes which either exclude or reweight exposure to carbon-intensive companies while limiting short-term risk against the benchmark.
We invite you to join a discussion with leading experts to examine the extent to which asset owners feel they are exposed to climate risk; the role of asset managers to encourage good practice when addressing climate change and carbon risk and how asset managers can effectively implement a low carbon strategy through index funds.
  • How to implement factor investing in your portfolio Recorded: May 26 2015 58 mins
    Joop Huij, Head of Factor Investing Research
    More and more investors are realising the advantages of factor investing and starting to implement its lessons not just as an afterthought, but as a top-down element of the overall investment strategy. A large percentage of pension funds still have a cover ratio that barely exceeds the minimum requirement and face funding issues due to the ageing demographics. To meet liabilities, pension funds are looking for higher returns while at the same time have less appetite for risk. Is factor investing the solution for the seemingly opposing challenges of risk and return?
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This webcast channel is for pension funds and other institutional investment professionals in Europe, the USA and Asia. It is particularly relevant for pension fund executives, trustees, consultants and investment managers. IPE will be bringing its community live interviews with leading figures in the market, hosting roundtable discussions on specific topics such as asset allocation and also sharing latest thought-leadership from investment experts.

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  • Presented by: Joop Huij, Head of Factor Investing Research
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