Single vs. multi-factor strategies-improving performance through factor-tilts

• Ano de defesa: 2020
• Autor(a) principal: Wieckert, Jonas
• Orientador(a): Schiozer, Rafael Felipe
• Tipo de documento: Dissertação
• Tipo de acesso: Acesso aberto
• Idioma: eng
• Palavras-chave em Inglês: Multi-factor; Advanced beta; Smart beta; ESG-investing; Liquidity investing; Factor-tilts
• Link de acesso: https://hdl.handle.net/10438/30002

This study compares the risk-adjusted performance of 10 single-factor (smart beta) and 75 multi-factor (advanced beta) portfolios over the period of 1992 to 2019. The emphasis is set on testing the performance changes achieved through illiquidity-tilts and ESG-tilts. Illiquidity-tilted multi-factor portfolios outperformed both single-factor portfolios and the general market. ESG-tilted portfolios only significantly outperformed in the subperiod after 2007. I attribute the lack of outperformance before 2007 to the limited ESG data availability, which substantially restricted the investable universe for ESG-based funds. The difference in the risk-adjusted performance between single- and multi-factor portfolios across all simulated portfolios was statistically significant. However, the benefits of further diversification diminished with the number of factors a portfolio was already tilted towards. The two portfolios with the highest Sharpe Ratios were tilted towards four factors. However, in general, little to no improvement could be observed beyond three factor-tilts. Robustness tests showed that the benefits of adding a factor-tilt was greater the more specialised the initial portfolio was. In the main part of the thesis, the portfolios were value-weighted and used a breakpoint of 0.8. However, the performance improvements, through additional factor tilts was stronger for equal-weighted portfolios and portfolios with a higher breakpoint. Overall, the results of this thesis show a superior risk-adjusted performance for advanced beta funds than for smart beta funds.