Navigating Economic Regimes with Precision
Shifting market structures and prolonged economic regime changes—like Secular Stagnation and post-COVID volatility—have exposed the limitations of legacy multi-factor approaches.
Andy Dougan | Managing Director, Index Research
December 2024
In today’s rapidly evolving economic landscape, traditional factor investing models face critical challenges.
Historical factor models often assume that factor returns are persistent and immune to macro regime shifts. However, recent decades reveal a different reality. Factor returns have been profoundly affected by economic cycles, market disruptions, and structural changes. Investors relying on outdated methodologies risk exposure to unintended biases and diminishing effectiveness. The need for a precision-driven methodology has never been more urgent.
The Evolution of Factor Index Design
Our latest research explores:
- Macro Regime Shifts and Factor Returns: How economic regimes like the "Goldilocks" era and "Secular Stagnation" have reshaped factor performance.
- Anchoring Bias in Traditional Approaches: The risks of over-reliance on past data and the impact on multi-factor portfolio construction.
- Unintended Exposures in Factor Strategies: How legacy methodologies introduce risks that dilute the intended effects of factor investing.
Adapting to a Changing Landscape
Our latest research underscores the need for:
- Precision in Factor Allocation: Strategies that focus on minimizing noise and unintended exposures.
- Adaptability to Economic cycles: Approaches that align with the realities of evolving macro and market conditions.
As factor investing enters a new era, our research provides a roadmap for navigating its complexities. Learn how changing economic and market structures demand a rethink of existing factor methodologies.
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