Invesco Global Factor Investing Study 2020 - Retail Summary Report
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Retail Summary Report
Invesco Global
Factor Investing
Study 2020
For Public Use in the
United States and Canada.
Not a Deposit. Not FDIC Insured.
Not Guaranteed by the Bank. May
Lose Value. Not Insured by any
Federal Government Agency.
1 Invesco Global Factor Investing Study 2020
Welcome
Invesco’s fifth annual Global Factor
Investing Study, based on an interview
program with 238 factor investors that are
together responsible for managing over
US$25.4 trillion in assets, is the largest and
most in-depth examination of global factor
investing currently being undertaken.
We explore these topics through five key themes:
1. Factor investors are resilient in the face of uncertainty
2. Fixed income factor investing continues to gain
traction, through potential for enhanced returns
and stronger risk management
3. Investors look to the intersection
of ESG and factor investing
4. ETFs can offer a familiar and flexible tool
for implementing factor strategies
5. Levelling up: demand for additional services
and improvements in implementation
Marcus Axthelm
Americas Director,
Factor Investing
marcus.axthelm@invesco.com
+1 (212) 278-9289
Mo Haghbin
Chief Commercial Officer
and COO, Invesco
Investment Solutions
mo.haghbin@invesco.com
+1 (212) 323-0485
Theme 1
Factor investors are resilient in the face of uncertainty
Figure 1.1
Factor allocation changes (% citations)
Increased Maintained Decreased
Previous 12 months
55% 40% 59%
57%
45%
36%
3% 5%
0%
APAC EMEA North America
Next 12 months
44% 47% 31%
66%
54% 50%
2% 3% 3%
APAC EMEA North America
Over the last 12 months, have you increased, decreased APAC = Asia Pacific;
or maintained your factor allocations? Over the next 12 months, EMEA = Europe,
how do you plan to change your factor allocations? Middle East and Africa
Theme one focuses on recent experiences
and allocation intentions. We found around
half of investors increased their factor
allocations in the 12 months leading up to
the study with a similar proportion planning
an increase in allocations over the next 12
months (Figure 1.1).
3 Invesco Global Factor Investing Study 2020 Retail Summary Report
Investor perceptions of performance
relative to expectations were only Figure 1.2
marginally more negative than Factor performance relative to expectations in 12 months
recorded in last year’s study to March 2020 (% citations, common cohort)
(Figure 1.2). Around two-thirds of
investors reported that their factor
allocations had met or exceeded Outperformed In line Underperformed
expectations, with investors
encouraged by factors behaving 2019
as they should despite a period of
market turbulence. 27% 28%
41% 42%
32% 30%
Institutional Wholesale
2020
23% 24%
42% 43%
35% 33%
Institutional Wholesale
Looking holistically across your portfolio, Sample size:
how have your factor strategies performed 2019 = 217
in terms of return relative to your expectations 2020 = 228
over the past 12 months?
Past performance is not a
guarantee of future results.
4 Invesco Global Factor Investing Study 2020 Retail Summary Report
Theme 2
Fixed income
Figure 2.1
factor investing Belief that factor investing can be extended
continues to gain to fixed income (% citations)
traction through Institutional Wholesale
potential for
enhanced returns 2018
and stronger risk 62%
57%
management
2019
70%
In our second theme, we explore 78%
the extension of factor investing into
fixed income portfolios. Notably, 2020
belief in the applicability of factor
investing to fixed income was found 98%
to be close to universal, having 92%
increased to 95% from around 60%
two years ago (Figure 2.1).
Investors cited the potential for a Do you believe that factor Sample size: 2018 = 284
factor approach to shine a spotlight investing can be applied to 2019 = 231
on alpha generation by active fixed the following asset classes? 2020 = 237
income managers and bring more
transparency to the market overall,
as has been the case with equities.
This was also reflected in growing Figure 2.2
levels of adoption: 40% of the sample Use of factors in fixed income (% citations)
were already using factors in fixed
income, and more than a third were
actively considering its introduction Already Considering Not
(Figure 2.2). implemented implementing considering
40% 37% 44%
46%
35%
20%
36%
25%
17%
Total Institutional Wholesale
Do you use factors in the Sample size: Institutional = 135
following asset classes? Wholesale = 91
5 Invesco Global Factor Investing Study 2020 Retail Summary Report
Theme 3
Investors look to
Figure 3.1
the intersection Investors with an ESG policy (% citations)
of ESG and factor
investing 82%
79% 76%
In theme three, we examine the
intersection of factor investing
and environmental, social and
governance considerations (ESG)
with the two continuing to advance
independently but in parallel.
This year 84% of institutions, and APAC EMEA North America
71% of wholesalers (all of them
factor investors) had an ESG policy in
place (Figure 3.1) while more than Do you have an ESG policy at Sample size: 224
half were already incorporating, or the organisational level?
considering incorporating, ESG into
their factor portfolio (Figure 3.2).
Figure 3.2
Investors incorporating ESG in factor portfolios (% citations)
Institutional
59% 24% 17%
Incorporating Considering Not considering
Wholesale
55% 14% 31%
Incorporating Considering Not considering
Do you incorporate or are Sample size: Institutional = 129
you considering incorporating Wholesale = 86
ESG in your factor portfolio?
6 Invesco Global Factor Investing Study 2020 Retail Summary ReportFor North American investors,
improving returns ranked alongside Figure 3.3
controlling risk as the main Motives for ESG adoption (% citations)
motivations for incorporating ESG.
In contrast stakeholder requirements
were much less likely to be a driver APAC EMEA North America
in comparison to other regions
(Figure 3.3).
Improve returns
54%
55%
85%
Control risk
79%
63%
85%
Regulation
40%
40%
46%
Conviction/reputation
56%
66%
49%
Stakeholder requirement
72%
80%
44%
What is your motivation to incorporate Sample size: 206
ESG into your strategies?
7 Invesco Global Factor Investing Study 2020 Retail Summary ReportTheme 4
ETFs can offer
Figure 4.1
a familiar and Use of factor ETFs (% citations)
flexible tool for
implementing 2019
2019
2020
2020 2019
factor strategies 77%
67%
60% 63% 63%
53%
In theme four, we look at how 45%
investors are using factor exchange-
traded funds (ETFs) to implement
their factor strategies and discuss
the drivers behind growing
allocations to these vehicles.
Institutional Wholesale APAC EMEA North
We found 60% of institutional America
investors and 67% of wholesale
investors were using ETFs as part
of their factor implementation, How do you execute Sample size: 2019 = 214
accounting for an average of 14% and your factor strategies? 2020 = 195
50% of factor portfolios respectively.
Figure 4.2
Percentage of factor allocation held via ETFs (average %, factor ETF users)
14% 50%
Institutional Wholesale
17% 24% 11% 9% 35% 74%
DB pension DC pension Insurer Sovereign Private Wealth
wealth fund bank manager
What percentage of your factor allocation is held via ETFs? Sample size: 104
In total more than three-quarters
of North American factor investors
were using ETFs in some form
(Figures 4.1 and 4.2).
8 Invesco Global Factor Investing Study 2020 Retail Summary ReportTheme 5
Levelling up:
Figure 5.1
demand for Use of multi-factor strategies (% citations)
additional services
and improvements Yes No
in implementation
78% 86% 62% 90%
In our final theme, we discuss the
growing sophistication of factor
investors and the additional demands 14% 38%
that this is placing on external asset 10%
22%
managers.
Total APAC EMEA North America
Multi-factor strategies were found
to be the norm used, by 78% of
investors in total and 90% of those in Do you invest in multi-factor strategies? Sample size: 224
North America (Figure 5.1). Investors
also reported putting more effort into
monitoring their factor exposures:
two-thirds of institutional investors Figure 5.2
were systematically monitoring factor Systematic monitoring of risk factor exposures (% citations)
exposures, up from just under half a
year ago (Figure 5.2).
2019 2020
65%
47%
41% 43%
Institutional Wholesale
Which approaches to factor Sample size: 2019 = 239
investing do you use within your 2020 = 234
portfolio (or client portfolios)?
9 Invesco Global Factor Investing Study 2020 Retail Summary ReportAppendix
Sample and methodology
The fieldwork for this study was conducted by NMG’s
strategy consulting practice. Invesco chose to engage a
specialist independent firm to ensure high quality objective
results. Key components of the methodology include:
• A focus on the key decision makers conducting
interviews using experienced consultants and offering
market insights.
• In-depth (typically 1 hour) face-to-face interviews using
a structured questionnaire to ensure quantitative as
well as qualitative analytics were collected.
• Results interpreted by NMG’s strategy team with
relevant consulting experience in the global asset
management sector.
In 2020, the fifth year of the study, we conducted
interviews with 238 different pension funds, insurers,
sovereign investors, asset consultants, wealth managers
and private banks globally. Together these investors are
responsible for managing $25.4 trillion in assets
(as of 31 March 2020).
All respondents were ‘factor users’, defined as any
respondent investing in a factor product across
their entire portfolio and/or using factors to monitor
exposures. We deliberately targeted a mix of investor
profiles across multiple markets, with a preference for
larger and more experienced factor users.
Institutional investors are defined as pension funds (both
defined benefit and defined contribution), sovereign
wealth funds, insurers, endowments and foundations.
Wholesale investors are defined as discretionary
managers or model portfolio constructors for pools of
aggregated retail investor assets, including discretionary
investment teams and fund selectors at private banks
and financial advice providers, as well as discretionary
fund managers serving those intermediaries.
Invesco is not affiliated with NMG Consulting.
10 Invesco Global Factor Investing Study 2020 Retail Summary ReportImportant information Investment risks
Circulation, disclosure, or dissemination of all or any Factor investing (also known as smart beta) is an
part of this material to any unauthorized persons is investment strategy in which securities are chosen based
prohibited. All data is in USD and provided by Invesco on certain characteristics and attributes that may explain
as of March 31, 2020, unless indicated otherwise. The differences in returns. Factor investing represents an
opinions expressed are current as of the date of this alternative and selection index-based methodology that
publication, are subject to change without notice and seeks to outperform a benchmark or reduce portfolio
may differ from other Invesco investment professionals. risk, both in active and passive vehicles. There can be no
assurance that performance will be enhanced or risk will
The document contains general information only and be reduced for strategies that seek to provide exposure to
does not take into account individual objectives, taxation certain factors. Exposure to such investment factors may
position or financial needs. Nor does this constitute a detract from performance in some market environments,
recommendation of the suitability of any investment perhaps for extended periods. Factor investing may
strategy for a particular investor. Investors should underperform market cap-weighted benchmarks and
consult a financial professional before making any increase portfolio risk. There is no assurance that the
investment decisions. Past performance is not indicative factor strategies discussed in this material will achieve
of future results. Diversification does not guarantee a their investment objectives or be successful.
profit or eliminate the risk of loss.
In general, equity values fluctuate, sometimes widely, in
Survey participants experience may not be representative response to activities specific to the company as well as
of others, nor does it guarantee the future performance general market, economic and political conditions.
or success of any factor, strategy or product. There
may be material differences in the investment goals, Fixed-income investments are subject to credit risk of the
liquidity needs, and investment horizons of individual issuer and the effects of changing interest rates. Interest
and institutional investors. rate risk refers to the risk that bond prices generally
fall as interest rates rise and vice versa. An issuer may
be unable to meet interest and/or principal payments,
thereby causing its instruments to decrease in value and
lowering the issuer’s credit rating.
Issuing information The use of environmental and social factors to exclude
certain investments for non-financial reasons may
limit market opportunities available to funds not
using these criteria. Further, information used to
This document is issued in: evaluate environmental and social factors may not be
readily available, complete or accurate, which could
Canada by Invesco Canada Ltd., 5140 Yonge Street, negatively impact the ability to apply environmental
Suite 800, Toronto, Ontario, M2N 6X7, Canada. and social standards.
The United States by Invesco Distributors, Inc., 11
Greenway Plaza, Suite 1000, Houston, Texas 77046, USA.
For Canadian Audiences: Commissions, management
fees and expenses may all be associated with
investments in mutual funds and exchange-traded funds
(ETFs). Trailing commissions may be associated with
investments in mutual funds. Mutual funds and ETFs
are not guaranteed, their values change frequently and
past performance may not be repeated. There are risks
involved with investing in ETFs and mutual funds. Please
read the prospectus before investing. Copies are available
from Invesco Canada Ltd. at www.invesco.ca.
Invesco® and all associated trademarks are trademarks
of Invesco Holding Company Limited, used under license.
©
2020 Invesco Canada Ltd
10/20 NA10007
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