Vantage Point: Achieving Diversification  

Factor investing: what is momentum and how can it be applied?

  • Describe how momentum and sustainability factors work in principle
  • Explain how malfunctioning of the stock market helps momentum investing
  • Identify how sustainability works as a factor in investing
CPD
Approx.30min

In summary, factor investing is an investment approach that involves targeting quantifiable factors that can explain differences in security returns. Momentum is the one of the five most widely accepted factors, with its focus on securities that have performed well over recent time periods.

A sustainable investing approach can be used as an additional lens through which a factor-based strategy can be deployed, and there are currently significant developments occurring in the regulatory regime around sustainable investing in the UK, through the FCA’s SDR and investment labels regime.

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This article concludes the wider series covering factor investing. If you are looking for a book on the subject of factor investing then Your Complete Guide to Factor-Based Investing by industry pioneers Andrew Berkin and Larry Swedroe is a great place to start. We wish you all the best in your factor investing journey.

Jonathan Griffiths is an investment product manager at EBI Portfolios

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. The momentum factor is the tendency for assets that have performed well in the recent past to stop performing in the near future, true or false?

  2. The momentum factor itself is typically seen as:

  3. A market 'under-reaction' to a stock is when:

  4. ESG inclusion is the exclusion of specific stocks in a strategy, true or false?

  5. Which of the following is NOT a label of sustainability categorisation from the FCA?

  6. When does the labelling regime come into effect?

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  • Describe how momentum and sustainability factors work in principle
  • Explain how malfunctioning of the stock market helps momentum investing
  • Identify how sustainability works as a factor in investing

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