At the 30th annual Morningstar Investor Conference held last month, passive strategist Adam McCullough interviewed Feifei Lee, director and global head of Research Affiliates Investment Management Group about her firm’s multifactor investment strategy.
Here are some highlights:
According to Lee, Research Affiliates offers investors a multifactor strategy that combines individual factor portfolios while remaining transparent with respect to which factors are under- or out-performing.
The strategy employs five factors; value, momentum, low risk, quality and size, says Lee, all of which were well-vetted in academic research and across geographies. The goal, she says, is to “have diversified paths across all the factors.”
Using supporting data on factor timing and factor crowding, says Lee, the firm’s multifactor approach can “help address investors’ concerns about rising valuations, and also prominence of certain individual factors.” While Research Affiliates is a strong believer in value investing, Lee explains, “When you deal with cross-sectional equity space, you do have thousands of securities to play with. So, the efficacy of timing in the factor space is a lot weaker than individual stock space.”