The merits of a factor-based approach to portfolio construction.
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- When building portfolios with factors, investors can harness the risk and return characteristics of the individual factors themselves and achieve diversification by combining them.
- A portfolio of six equity factors weighted equally can exhibit compelling results, including positive excess and higher risk-adjusted returns relative to the broader equity market.
- Equity factor allocations may also be fine-tuned to target specific outcomes, such as capital appreciation, downside protection, and income.
- Factor combinations can be used to create a core equity portfolio from the ground up, or to complement existing holdings.
Diversification does not ensure a profit or guarantee against a loss.