Partner Insight: Looking under the bonnet of factor investing

Darren Sharp
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Partner Insight: Looking under the bonnet of factor investing

Factor investing is maturing but the mechanics still confuse some investors. Willem van Dommelen, head of factor investing at NN Investment Partners, tells Incisive Works about the Multi Asset Factor Opportunities (MAFO) fund.

What exactly is MAFO designed to do for investors?

MAFO is designed to deliver a target absolute return of 6% on top of 1-month US LIBOR over a 12-month period while delivering diversification benefits. The strategy is designed to fulfil investors' needs to create more stable portfolios while adding a true diversifier to traditional asset classes as well as to other liquid alternatives.

It achieves the target absolute return by systematically applying five so-called investment "factors" - value, carry, momentum, flow, volatility - that have a long standing in both academia and investment practice. The fund invests in the factors using equity indices, treasury futures, currencies and the 23 commodities on the Bloomberg commodity index. The approach means MAFO offers both an absolute return target and significant diversification benefits.

You've just passed your three-year launch anniversary, how have you performed?

We have done well. Over the first three years of the fund, MAFO generated an annualised return of 8.98%, thereby outperforming 1-month US Libor + 6% annualised. That's in a period including the withdrawal of quantitative easing, the Brexit referendum, and last December's stock market volatility.

Any nasty surprises along the way?

Well, if you look at October and December 2018, equity markets went down by more than 7% and our fund, if you sum up the performance in October and December, was actually up. But we lost out in November on the back of energy market volatility. So in Q4 overall we went down, like a lot of funds, but actually not in the same months as equity funds.

That's the big message: we've outperformed our target over the full three years while demonstrating low correlation with equities.

Click here to find out more about MAFO and how to take a "building block" approach to diversification

 

Investment is subject to risk, including the possible loss of the money invested. Diversification does not ensure a profit or protect against a loss. Past performance is not a reliable indicator of future results. Currency movements can affect your investment returns. For more detailed information about the NN (L) Multi Asset Factor Opportunities fund, please refer to the prospectus and Key Investor Information Document available at www.nnip.com

 This is a communication issued by NN Investment Partners B.V. (the "Company"), a Dutch limited liability company registered as an overseas company (registration number FC032623) and as a branch (registration number BR017698) in the register of companies for England and Wales, with its registered address at 25 Old Broad Street, London EC2N 1HQ. The Company is authorised by the Netherlands Authority for Financial Markets and subject to limited supervision by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.

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