Factor Strategies in Brazil: A Practitioner's Guide

What Are Factor Indices?

Capturing market idiosyncrasies and desired risk/return characteristics has been a fundamental component in the active management space for decades.  Taking the fundamental ideology behind an investment strategy and democratizing it within an index allows for it to provide at minimum a gauge for relative performance and at best the ability to systematically track alpha.

When looking at factor strategies in Brazil, we will be focusing on four different strategies.

When looking at factor strategies in Brazil, we will be focusing on four different strategies.

Enhanced Value: At the most basic level, the goal of investing in value stocks is to buy stocks that are “cheap” or trading at a discount relative to their peers based on company fundamentals.

Momentum: The goal of momentum investing is to capture the stocks that have had the highest price appreciation relative to their peers with the expectation that they will further outperform in a rising market.

Quality: Investing in companies that have quality characteristics seeks to capture stocks that have fundamentals that exemplify a well-run company relative to their peers.

Low Volatility/Inverse-Risk Weighted: Low volatility or inverse-risk weighted strategies allow for participation in the market even during turbulent or volatile times.

Each strategy has its own risk/return characteristics that we will discuss throughout this paper.

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