Factor models play an important role in evaluating the performance of equity strategies. These models can be used to evaluate whether an outperformance against the benchmark could be achieved with known risk premia or through special skills of the asset manager. The question is relevant for cost-sensitive investors, for example: Can a strategy be replicated using low-cost ETF factor building blocks (smart beta) or does it deliver real alpha?
We analyze this question for our Quality Top strategies using the 7-year track record of the Global Top 8 Composite. The results show that a part - but not all - of the outperformance of the Quality Top 8 strategy is due to the systematic use of the profitability factor (RMW), the rest is real alpha.
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12/15/2021
Hérens Quality Asset Management AG