The growth of factor-based investing is a positive development for investors, but even greater due diligence is needed to ensure the fund manager actually knows what they are doing.
That's according to Citywire AA-rated Roger Rüegg, who oversees two systematic strategies at Swisscanto Invest by Zürcher Kantonalbank.
Investor interest in factor investing – using overlays such as value, momentum and carry, among others – has grown in recent years and there has been a rush of new launches to meet that demand, Rüegg said.
However, Rüegg warned that newer funds may have been rushed to market without a fully workable investment model in some cases.
‘A lot of managers are now thinking about factor investing, but I would say this is not simply a practice of overlaying it onto what you are already doing, as you wouldn’t be using it properly.
‘There is nothing wrong with other managers using factor investing but they have to know what they are trying to do and understand the economic case for doing so.’
Highlighting several players who have been in operate for a number of years in this area, including himself, Rüegg said the actual concept of factor investing is being treated as a new phenomenon in fund management, which isn’t the case.
‘We have been using factor investing techniques in our Selection International funds since 2005 and we started using it on our World Enhanced funds in 2007 and it is now being treated as a new method.
‘However, you can for example trace value and quality investing back to the 1930s with Graham and Dodd. Now it is coming through in different forms and a lot of people are talking about smart beta investing, which is similar but more standardised,’ he said.
Rüegg and his team currently oversee around CHF 5 billion in systematic, factor-driven funds. He said their longevity in this area has allowed them to refine, improve and build on their process, which shows the importance of a lengthy tenure in this specialised area.
Rüegg is ranked 51 out of 358 in the global equity sector for his absolute performance over the three years to the end of November 2017. This is for the combined return on both his SWC (CH) EF World enhanced NT CHF and SWC (CH) IPF I EF World enhanced NT CHF funds. He returned 34.7% in euro terms against an average manager return of 23.5% over the same timeframe.