By October 14, 2020October 16th, 2020No Comments

What kind of setup is involved?

None! You just log in, build/import your portfolios, and you’re up and running!

What assets can factorE analyze?

factorE currently supports the entire US traded investment universe of stocks, mutual funds, ETFs, closed-end funds, and BDCs. Of particular note, this tool can effectively handle alternative strategies such as long-short equity or managed futures in ways most other tools can’t.

Beyond our own investment universe, users are also able to create a “Private Asset”. This will effectively allow users to input returns of any proprietary strategy/model, hedge fund, private equity/credit, SMA, etc. All we need is a daily or monthly return stream!

I have {insert smart beta funds}. Why doesn’t my portfolio have exposure to those factors?

Factor exposures can cancel each other out. That is one of the most important aspects of this tool. It is one thing to use smart beta funds… and another thing entirely building a portfolio that has appropriate factor tilts!

Where do you get your factors?

Some of the factors are well known or commonly understood (e.g. equity, duration). Some other factors (e.g. value, carry, momentum) have been constructed leveraging quantitative teams from seven of the largest investment banks. These investment banks manage tens of billions of dollars in their “risk premia” suites for some of the largest institutions in the world.

What is the “best” factor radar?

factorE doesn’t have an agenda and there is no “best” radar. Instead, this tool only shows the user what risks it sees in a portfolio. It is up to the user to decide if that factor radar is “good” or “bad.

What do you mean by "factor-based" in the scenario analysis? What is the difference between "factor-based" and "real" in the growth of $1000?

When factorE predicts the risk exposures of an asset or of a portfolio, those predictions come out in the form of betas. Betas to equity, momentum, dollar, etc. No different than CAPM… only factorE’s risk decomposition process involves more than just “equity beta.” 🙂

Now, each of those risk factors carries a return. Just like the equity risk factor was up 30% in 2017 (etc), all of those risk factors have returns.

So, if I have return streams for each of those factors… and I have betas to those factors… then I can predict returns for an asset or portfolio by multiplying (and adding) the betas to those return streams.

Simple example: Beta of equity of 0.5 and equity returns of 10% equates to 5% return.

The factor-based (blue) line is the result of that explanation above.

The real (green) line is the actual portfolio, with those actual weights to those securities, using those actual securities returns. This portfolio is what is called a “fixed-weight” portfolio, meaning a weight of 5% is always 5%. This is generally how one might think about a model portfolio. After all, clients will go into a model portfolio on any day of the year… and the account will get rebalanced (or not rebalanced) for myriad reasons. But the “benchmark” portfolio is that fixed-weight portfolio.

Can I embed factorE on my website?

Absolutely! factorE offers a Digital Engagement Module which allows customers to embed a live factorE application into their website.

Learn more by visiting our factorE Enterprise Solution page.

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