How do you all feel about factor investing? Based on personal preference and research, I’ve put together a simple sample portfolio to illustrate its potential. I've benchmarked it against the MSCI World Index $IWDA (+1.34%) .
The results are quite compelling—the factor-based portfolio consistently outperforms the benchmark in both return and risk-adjusted terms:
Annual return:
Factor portfolio: 9.02%
MSCI World: 6.42%
Volatility (Standard Deviation):
Factor portfolio: 14.76%
MSCI World: 14.48%
Sharpe Ratio:
Factor portfolio: 0.55
MSCI World: 0.39
Max Drawdown (during 2008 financial crisis):
Factor portfolio: -47.7%
MSCI World: -56.5%
Value at Risk (VaR, 95% confidence, 1-year horizon):
Factor portfolio: -14.5%
MSCI World: -16.5%
This suggests that a thoughtfully constructed factor portfolio can offer superior returns while managing downside risk more effectively than a broad-market benchmark like the MSCI World.
Would love to hear your thoughts or see how this compares with any strategies you're exploring.