Factor Investing in the Corporate Bond Market

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The paper highlight empirical evidence that the Size, Low-Risk, Value and Momentum factors have economically meaningful and statistically significant risk-adjusted returns in the corporate bond market. Since the factors capture different effects, a combined multi-factor portfolio halves the tracking error compared to the individual factors. The returns are up to three times larger than the market, and cannot be explained by risk or the equivalent equity factors.

What is the best approach to factor investing?

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Factor investing is gaining ground. In a special whitepaper “an introduction to factor investing” Robeco explains what it is and how to set up your investment portfolios accordingly. 

Factor investing is a new, alternative way of strategically allocating to the most attractive segments (factor premiums) of the market. In the case of equity investors, this could be, for instance, the low-volatility segment, the value segment or the momentum segment. 

How to combine factors in the duration model?

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In this note we explain how different factors that predict bond returns are combined in the duration model. The goal is that each factor has a similar impact on the model. We have recently enhanced the way we combine factors.

Surprising results of Lower Volatility Equities in Emerging Markets

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Emerging markets have become increasingly important to equity investors due to their fast growing economies. But what is the relationship between risk and return in these markets? Answer: it is flat or even negative. Empirical results show that the volatility effect - long-term equity returns at distinctly lower downside risk - is significant, robust and distinct.

A Sharper approach to harvesting factor premiums

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There is a shift towards allocating to the factor premiums momentum, value and low volatility. However, since common factor indexes are a suboptimal way to harvest factor premiums, this paper shows the improved results of a more sophisticated approach. Factor strategies developed by Robeco lead to higher returns, while lowering the risks, resulting in higher Sharpe ratios. 

How Smart is 'Smart Beta' Investing?

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Investors increasingly embrace “smart beta” investing, by which we mean passively following an index in which stock weights are not proportional to their market capitalizations, but based on some alternative weighting scheme. Examples include fundamentally-weighted indices and minimum-volatility indices. In this whitepaper we first take a critical look at the pros and cons of smart beta investing in general. After this we successively discuss the most popular types of smart indices that have been introduced in recent years.

Residual Equity Momentum for Corporate Bonds

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It is well documented that equity momentum has predictive power for corporate bond returns. We show that an equity momentum strategy applied to corporate bonds exhibits significant time-varying exposures to common equity and bond risk factors. The strategy thus bets on the persistence of these factor returns. We are able to improve upon a traditional momentum strategy, by focusing on the firm-specific component of stock returns.

Enhancing a low-volatility strategy is particularly helpful when generic low volatility is expensive

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Frequently the question comes up if low-volatility is ‘expensive’, measured by multiples such as P/E and P/B ratios. The investors asking this are sometimes worried about the expected performance of low-volatility in such an environment. In this note, we address this question using an extended 82-year sample period for the US stock market.

On the nature and predictability of corporate bond returns

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Corporate bond returns consist of two distinct components: an interest rate component, which is default-free and anti-cyclical, and a credit spread component, which is default-risky and pro-cyclical. These components are mutually negatively correlated and their relative importance varies with credit quality. We show that it is of critical importance to take this into account when studying the predictability of corporate bond returns. 


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