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Factor-Based v. Industry-Based Asset Allocation: The Contest

Factor investing has emerged as the new paradigm for long-term investment. This paper organizes a multi-trial contest opposing factor investing and sector investing. The results suggest that factor investing is the best strategy when short sales are permitted. It also outperforms industry-based allocation during expansion and bull periods. In contrast, sector investing offers defensive opportunities to asset managers since it delivers better risk-return trade-offs for long-only portfolios during recessions and bear periods. Overall, factor investing keeps its promises, but it still has a long way to go before it can oust sector investing.

Amundi Working Paper - June 2015 (First version) - October 2016 (Revised version) 

BRIERE Marie , Amundi Research - Advisory Research
SZAFARZ Ariane , Professor - Université Libre de Bruxelles & Co-Director – Centre for European Research in Microfinance

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Factor-Based v. Industry-Based Asset Allocation: The Contest
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