It is no secret that active management has been increasingly critiqued in recent years, and asset flows are following suit as investors move to passive products.
One of the large recipients of these flows is index-based, quasi-active, smart beta and factor strategies that deliver returns of active managers, but at a fraction of the cost.
Historically, many of these factors have outperformed in nearly all environments – an impressive track record, but one that may be challenged as more assets move into the space.
However, we’ve written extensively on a number of clues as to what factors outperform and when, and what investors can do to give themselves the best chance to outperform going forward. Is there a connection between outperformance of factor investing and active management? Are correlations the answer to both?