This has begun to see a fair amount of interest and traction in India; many asset managers are launching funds based on factor strategies.
Harshvardhan Roongta, CFP — Roongta Securities, and Pradeep Kesavan of SBI Mutual Fund discuss how factor-based funds operate, the variables that influence their performance, and their role in portfolio diversification.
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Kesavan explains that factor investing focuses on analysing specific characteristics of companies, referred to as factors, to identify attributes that could provide a competitive advantage. For example, companies with low leverage are grouped, regardless of their industry, and analysed collectively to assess their potential. This approach prioritises shared traits over sector classifications.
Roongta highlights how factor investing allows investors to tailor their portfolios based on specific requirements. For instance, an investor seeking stability might choose a low-volatility factor fund, ensuring exposure to less risky companies.
Alternatively, a momentum strategy could be adopted in a bullish market to target stocks that consistently outperform. While diversified equity funds aim for a balanced approach across various factors, factor investing enables a focused strategy aligned with market conditions or individual preferences.
Watch the video for the in-depth analysis.
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