Taking interest rate risk out of Factor Investing

Some factor-based strategies can be sensitive to rising interest rates, but the risk can be reduced.

Interest rate changes and the shape of the yield curve provide a lot of information about market conditions that drive capital allocation decisions throughout the economy and thus influence stock market returns. Interest rates affect stock valuations through two main channels—discount rates that impact the present value of future cash flows and borrowing costs that directly relate to consumer spending. Both influence the performance of equity markets and risk factors to varying degrees.

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