Key Takeaways
- Ethic’s approach to factors: We use a multi-factor risk model to go beyond simple sector classifications, helping uncover the underlying drivers of performance and risk.
- Two ways to integrate factors: Investors can either use a factor-specific benchmark or apply tilts toward factors within a broader benchmark.
- Trade-offs to weigh: Factor tilts can affect portfolio flexibility, tax efficiency, and tracking error, making alignment with long-term goals essential.
At Ethic, we believe factors are a powerful tool for understanding risk and return. Unlike sectors, which group companies by industry, factors capture underlying characteristics—such as whether a stock is undervalued, growing quickly, or financially strong—that drive performance.
Our new guide, Unlocking Investment Potential: An Overview of Equity Factors, explains how we use a multi-factor risk model to capture these nuances and tailor portfolios to client objectives. Inside, you’ll find:
- A breakdown of the primary style factors (Value, Growth, Size, Quality, Low Volatility, and Momentum)
- An overview of the two main approaches to factor exposure
- A practical discussion of the trade-offs involved in applying tilts
Download the full PDF below
