Parametric Multifactor Strategies

Overview
Investment Approach

Overview

Strategy Facts

Capability:

Solutions & Multi-Asset

Strategy Facts

Capability:

Solutions & Multi-Asset

Summary

Parametric Multifactor Strategies seek to provide a performance boost beyond equal-weighting of factors by monitoring and re-allocating exposure across target factors based on performance trends. The strategies offer investors the potential for lower implementation costs, reduced volatility, and outperformance through dynamic factor allocation across market cycles.

Investment Approach

Philosophy

Parametric’s Multifactor Strategies were introduced to diversify away from the cyclicity risk of factor returns in a risk-controlled, liquid, and low-cost manner by trimming exposures when factor volatility increases or performance lags, and leaning into factors with more favorable risk-adjusted performance. To achieve this, we use an integrated optimization approach, which allocates risk across target factors, maximizing exposure to compensated risks, subject to constraints on sectors, beta and other non-target exposures, as well as limits on stock-level concentration and trade sizes. This approach seeks a liquid and tradable exposure appropriate for institutional-sized mandates.

Differentiators

The U.S. and Global Multifactor Strategies represent our best thinking on which factors are attractive candidates for investment, how to allocate exposure across multiple factors, and how to implement multiple factor exposures in a portfolio. By considering performance, risk exposures, and liquidity within a consistent framework, investors address these challenges and best position themselves to capture multiple factor premia.

DIVERSIFICATION

Less reliance on any one factor, sector, country or stock to drive excess returns may result in a smoother ride than more concentrated approaches.

TRANSPARENCY

A rules-based, quantitative investment process delivers a portfolio built from the ground up that seeks to capture factor premia that have been extensively validated by practitioners and academics.

RESPONSIVENESS

Systematizes and streamlines factor allocation investment decisions with continual monitoring and updating of exposures across multiple factors.

PRECISION

Parametric Multifactor Strategies provide targeted and calibrated factor risk exposures.

Thoughtful portfolio construction delivers full market exposure while mitigating unintended portfolio risks.

Investment Process