Factor Momentum Investing – Adding Value with Style

A simple factor rotation model can take advantage of the increasing dispersion of factor returns, particularly in volatile investment markets.”

~ Joseph Stein
Director of Quantitative Research
Natixis Investment Managers Solutions

Factors are often defined as common drivers of security returns across asset classes. Since the Covid-19 outbreak in March 2020, factors have been a notable driver of equity market returns.

To capitalize on both increasing dispersion and decreasing correlation among factor returns, we evaluated a simple US equity factor rotation model. The strategy focuses on liquid US ETFs designed to track five common style factors – value, size, quality, growth and volatility. Our research suggests that a factor momentum strategy could outperform broad US equity markets in both high and low volatility environments.