Combining multi-factor investing with traditional active credit management offers investors scope to benefit from diversification.
- Over the past decade the use of multi-factor investing in corporate bonds has increased significantly. Better access to corporate bond datasets along with extensive research have enabled managers to develop robust factor-based strategies.
- Our research highlights the low correlation between multi-factor investing and traditional active management in corporate debt. In combination the two strategies help improve the overall risk-return ratio of an investment. Over the long term they diversify the incremental returns.
- A multi-factor strategy should thus be considered as a strong diversifier in the credit asset class with the ability to reduce risks and drawdown. This diversification benefit has again been apparent during the COVID-19 crisis.
As growing numbers of institutional and wholesale investors implement factor-based strategies or consider doing so, this short study highlights the diversification benefits of including multi-factor investing in an allocation to corporate bonds.
For in-depth insights into the benefits of combining multi-factor investing with a conventional approach to managing corporate debt, read:
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