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Factor-Based Strategies Hedge Against Inflation

Institutional and retail factor practitioners expect factor-based strategies to outperform in an inflationary environment with slow economic growth, says Invesco Ltd.’s seventh annual ‘Global Factor Investing Study.’ Respondents also believe the current market environment makes factor investing in fixed income more attractive as a better way to manage volatility and diversify portfolios. "Investors are increasing their use of factor-based strategies to navigate market volatility and hedge against inflation and we believe their commitment to factors will remain strong," says Mo Haghbin, chief commercial officer and COO, Invesco Investment Solutions. "Investors are shifting their philosophy from static allocations to more dynamic approaches to capture upside and position their portfolio across the economic cycle." The study also noted factor allocations are continuing to rise, with 41 per cent of respondents increasing allocations over the past year and 39 per cent planning an increase in the next year. In 2022, only three per cent indicated they planned to decrease factor allocations in the next 12 months, down from eight per cent in 2021. Adoption of a long-term, diversified multi-factor approach has increased in the past 12 months as global market volatility has increased as 80 per cent of respondents now adjust factor weights over time, driven by the varying performance of different factors over the economic cycle and a desire to balance out exposures across the portfolio. Research also indicates an increased demand for fixed income factors as the 40-year bull run came to a halt. Over 50 per cent of institutional and retail respondents believe the current market environment makes factor investing in fixed income more attractive.

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