Introduction: What We Talk About in Factor Investing

Abstract

We do not often read about the important decisions faced by investors in picking passive strategies—whether to invest in traditional indices or factor investing strategies. The growth of passive investing accelerated sharply after the global financial crisis in 2008/2009. Over this period, it has fuelled public debate on the right and wrong approaches to factor investing. This chapter highlights what factor based investing is and what it is not, along with some of the lessons learned through the lenses of pessimists and optimists on the subject. With all the lessons in mind, the prospects for continued adaptation of factor investing may be brighter than previously thought. The fact that many prominent academics, practitioners and investors have applied their skills to factor investing is a testimony to the fascination and the interest in the subject. The discussions and debates are likely to continue in the finance industry, in academia and at cocktail parties.