Incisive Works asked Willem van Dommelen, head of factor investing at NN Investment Partners, what differentiates his Multi Asset Factor Opportunities (MAFO) fund - and whether factor investing is an "active" or "passive" strategy.
Do you differentiate yourselves through inventing new factor investing approaches?
Not exactly. We differentiate ourselves by keeping things simple. There is ample evidence that many bells and whistles added on to ‘traditional' factors do not add any value, and even worse that they destroy value and are just the result of data mining.
Our focus on simplicity enables us to understand the sources of return (factors) that we harvest and what risks they entail. Our approach is built on a robust research process whereby we regularly re-evaluate our strategies to ensure we are not dogmatic.
So what drives your ability to target an absolute return?
The individual factors we apply - value, carry, momentum, flow, volatility - have proven their worth in practice over the longer term and are here to stay. They pick up different sources of returns and hence are uncorrelated to each other (and to traditional investments). So what drives the ability to target absolute return is the positive expected return of factors over the long term and their low pairwise correlations.
One question perplexes investors: Is factor investing an "active" or "passive" investing style or somewhere in the middle?
MAFO is built on active research to find, assess and review the factors used in the model. We implement the model on a daily basis to optimise its performance. The real point is that factor investing must be systematic: the strategy should deliver the exact same thing in the future as in the past, given the same market environment. Markets never stay the same, of course, but the contrast with traditional discretionary managers is clear: they can change their opinion and react quite differently to similar markets.
Click here to find out more about MAFO and the NN IP team's approach to targeting both absolute returns and diversification benefits
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.