Rethinking Multi-Factor: avoid hidden bias to achieve true multi-factor exposure

Recent years witnessed a significant increase in interest from investors in factor and multi-factor investing. 2020, however, turned out to be an unpleasant year for many investors in factor-based strategies. This includes the widely cited value factor drawdowns, but also multi-factor strategies themselves, particularly those that are put forward to investors as providing a diversified exposure to risk factors, which many did not. In this webcast we shed light on why factor investing in its common form and in particular multi-factor portfolios may not deliver investors the balanced risk exposures and diversification effects, that they typically hope to achieve or are promised to obtain by spreading their investments across multiple factors. We explore common implementations of multi-factor strategies revealing that many suffer from unwanted biases, then highlight the unintended consequences of these hidden biases.