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The traditional investment approaches employed to generate active returns in the government bonds market focus essentially on actively timing duration, credit risk or currency exposure.
The naïve approach to single factor investing is to simply select the stocks that have the desired characteristic and to find a weighting scheme that doesn’t raise too many problems in terms of liquidity and diversification, i.e. usually linked to some extent to the original market capitalisation.
While factor investing has gained strong popularity among equity investors, its range of application is not limited to one asset class.
For some years now, ‘factor investing and smart beta’ has been the hot topic in the financial media.
Since the outbreak of the Great Financial Crisis, flexible multi-asset funds have caught investors’ attention, causing assets to pour into the segment’s blockbusters. There is no need to go over the catalysts in detail; they have been well discussed enough: traditional benchmarks did not protect investors from deep losses.
Olivier Laplénie finds that smart beta fixed income for corporate debt is best informed by a subtle combination of bond and equity indicators
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