RT Journal Article SR Electronic T1 The Latest Wave in Advanced Beta: Combining Value,
Low Volatility, and Quality JF The Journal of Index Investing FD Institutional Investor Journals SP 67 OP 76 DO 10.3905/jii.2014.5.1.067 VO 5 IS 1 A1 Jennifer Bender A1 Eric Brandhorst A1 Taie Wang YR 2014 UL https://pm-research.com/content/5/1/67.abstract AB The latest wave in advanced beta, also known as smart beta, factor investing, and risk premia investing, among other names, has focused on combining multiple factors in one portfolio. One of the more widely discussed combinations has been Value, Low Volatility, and Quality, which results in a portfolio with lower-than-average valuation and return volatility, and higher-than-average quality (measured by metrics like profitability, earnings variability, and leverage). In this article, the authors discuss why this combination has been of interest and summarize the key considerations for investing in such a strategy. The intuition behind the three factors as well as the empirical evidence has provided support for the combination. Moreover, the three-factor portfolio attempts to take advantage of potential diversification benefits over time, which dampens the well-known challenge of cyclicality in advanced beta strategies, a key hurdle in implementation.TOPICS: Analysis of individual factors/risk premia, portfolio construction, volatility measures