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After enjoying many years of immense popularity, factor investing (also known as alternative risk premia or smart beta) is suffering from significant underperformance, both across asset-classes and especially within security selection. While some factors have fared worse than others, there’s no doubt that the space as a whole is enduring an intense and prolonged winter. The team at ReSolve has been thinking deeply about this theme for the past two years, and this episode expands on the framework we have developed to understand the current environment for factors – and for the generation of sustainable alpha more broadly. Topics include:

  • The origins of factor investing and why they used to work
  • The adoption curve – similarities and differences between investment edges and new technologies
  • Reflexivity and the “hard problem of investing”
  • Value investing – why the most intuitive risk premium has suffered the most
  • How changes in markets’ microstructures and the macroeconomic backdrop affect these dynamics

We also offer ideas on how investors might seek sustainable edges going forward and how to position their portfolios to this new reality. This is an ongoing and open-ended discussion, and we certainly welcome your thoughts and feedback.

Thank you for watching and listening.

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