Attributes of a stock that are identified as a potential drivers of returns.
Factors affect the performance of a stock. A basketball coach may consider factors such as “height” and “speed” when selecting players. Similarly, an investor might consider “reversion” and “value” as factors for a stock.
A systematic investment approach to evaluate firms based on certain attributes.
Firms are assessed on how attractive they are based on one or more factors/attributes, and then ranked against other firms. Higher ranked firms may indicate a greater opportunity to outperform the market.
It starts with a theory on how an attribute may affect future returns of a stock.
For example: “Shares that are cheap relative to some measure of fundamental value can outperform those that are pricier.” Researchers then analyse data to form an investment view based on the theory. The performance of the factor is evaluated for potential usefulness and significance.
Crea8’s founder and advisors have strong links with Cambridge University and years of experience, including publications at peer reviewed journals, available here.
We tap on these Cambridge backed research and industry experience to derive factors for you to invest in.
Factors are identified using historical data and may not be effective in the future.
As the predictability of factors may decay over time, factor potency might differ from what it used to be. Hence, it might not be as profitable as what the backtest has found.
We combine factors with themes to outperform the market.
Our factor based investing service allows you to overlay factors on thematic portfolios to profit from the predictability and sustainability of multi-year trends. You can adopt our pre-selected factors or create your own combinations.
Check out our white papers here.