Factors are sold like an index but in reality are active exposures.

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dlc@doubleconvexllc.com
David Cvengros
FACT(or) Fiction
Is Factor Investing Active Investing?

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Monday, January 9, 2023
dcvengros@2xconvex.com
FACT(or) Fiction
A Perspective
Factors are sold as a low-cost index alternative to active management. That would imply that one
manager’s value or momentum factor would be identical to any other manager’s value or
momentum factor. Is that that case?
Simple Analysis
A comparison of the factors side by side should answer the question. The next three slides analyze
banks factor swaps with identical objectives.
The Intriguing Answer
The factors are indistinguishable in every statistic except one - performance.

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Monday, January 9, 2023
dcvengros@2xconvex.com
Factor Premia Investing is Active Investing
Highly correlated factors with the same objective can have dramatically different performance
14.79%
11.55%
6.21%
4.19%
13.81%
6.70%
12.42%
11.22%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
BXIIKUTU SGEPQBU BXIILUTU SGEPVBU BXIIMUTU SGEPMBU BXIILUTU SGEPLBU
QUALITY VALUE MOMENTUM LOW VOLATILITY
95% 97% 90% 98%
5 Year Annualized US Equity Factor Total Return
Correlation
Provider #1 # 2 # 1 # 2 # 1 # 2 # 1 # 2
Provider #2 Provider #2 Provider #2
Provider #1 Provider #1 Provider #1
Provider #2
Live Data
Source:

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Monday, January 9, 2023
dcvengros@2xconvex.com
5 Year Annualized Performance
US Factors Premia
US QUALITY US VALUE US MOMENTUM US LOW VOLATILITY
Measure BXIIKUTU SGEPQBU BXIILUTU SGEPVBU BXIIMUTU SGEPMBU BXIILUTU SGEPLBU
Return Annualized 14.79% 11.55% 6.21% 4.19% 13.81% 6.70% 12.42% 11.22%
Return Cumulative 99.42% 72.84% 35.17% 22.80% 91.08% 38.34% 79.68% 70.29%
Volatility 12.75% 12.69% 15.47% 15.75% 16.30% 14.25% 10.54% 10.59%
Sharpe 1.09 0.84 0.34 0.21 0.79 0.41 1.09 0.97
Skewness -0.39 -0.44 -0.38 -0.45 -0.59 -0.36 -0.53 -0.50
Kurtosis 3.07 3.81 2.80 2.96 2.41 3.10 3.83 3.72
Calmar 0.80 0.56 0.22 0.12 0.48 0.25 0.96 0.88
Omega 1.20 1.16 1.07 1.05 1.14 1.08 1.21 1.19
Sortino 1.39 1.04 0.45 0.27 0.99 0.52 1.39 1.25
VaR 1.36% 1.37% 1.69% 1.71% 1.75% 1.54% 1.10% 1.09%
ModVaR 1.31% 1.31% 1.63% 1.68% 1.76% 1.49% 1.09% 1.10%
CVaR 1.97% 2.01% 2.39% 2.47% 2.61% 2.27% 1.62% 1.63%
Avg DD -2.46% -2.36% -6.03% -6.92% -4.74% -3.43% -1.97% -1.98%
Max DD -17.29% -19.00% -23.68% -26.28% -27.16% -22.88% -11.97% -11.77%
Worst 20d -54.80% -56.88% -65.32% -66.75% -71.18% -61.56% -45.64% -46.09%
%Up Week 59.92% 59.92% 58.39% 56.87% 61.06% 58.01% 61.45% 59.92%
%Up Month 67.21% 63.93% 54.09% 54.09% 57.37% 57.37% 65.57% 60.65%
Virtually Indistinguishable except for Performance
Provider 1 Provider 2 Provider 1 Provider 2 Provider 1 Provider 2 Provider 1 Provider 2
Live Data
Source:

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Monday, January 9, 2023
dcvengros@2xconvex.com
Provider 1 Provider 2
Multi-factor Multi-factor Portfolio – Provider 1, EQ Multi-factor
Measure 5 Years 5 Years US Momentum
Return Annualized 8.53% 12.01% US Value
Cumulative Return 50.64% 76.21% US Quality
Volatility 12.44% 12.65% US Low Volatility
Sharpe 0.61 0.88
Skewness -0.42 -0.47 Portfolio – Provider 2, EQ Multi-factor
Kurtosis 3.40 3.10 US Momentum
Calmar 0.40 0.57 US Value
Omega 1.12 1.17 US Quality
Sortino 0.77 1.10 US Low Volatility
VaR 1.41% 1.39%
ModVaR 1.30% 1.32% Allocation Model
CVaR 1.98% 2.00% Model Equal Weighting
Avg DD -2.56% -2.58% Rebalancing Monthly
Max DD -18.99% -19.42% Rebalancing Date Last Day
Worst 20d -54.50% -55.53%
%Up Week 59.92% 61.45%
%Up Month 63.93% 68.85%
Multi – Factor Portfolio Comparison
Performance is the only distinguishable statistic in two separate multi-factor portfolios
5 Year Annualized Performance
(Multi-factor Equal-weighted Factor portfolios)
Live Data
Source:

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dcvengros@2xconvex.com
Disclosure
There is no obligation to update this document or correct any inaccuracies that may be contained herein. Hypothetical performance results
shown on the preceding pages and are backtested and do not represent the performance of any account but were achieved by means of
the retroactive application of each of the previously referenced models
The hypothetical backtested performance does not represent the results of actual trading using client assets nor decision-making during the
period and does not and is not intended to indicate the past performance or future performance of any account or investment strategy. If
actual accounts had been managed throughout the period, ongoing research might have resulted in changes to the strategy, which might
have altered returns. The performance of any account or investment strategy will differ from the hypothetical backtested performance
results for each factor shown herein for a number of reasons, including without limitation the following:
• The hypothetical backtested performance results for each strategy include estimated values for transaction costs of buying and selling
securities, which may not be accurate. Investment management fees (including without limitation management fees and performance
fees), custody and other costs, and taxes – all of which would be incurred by an investor in any account managed by are not included in
performance results. If such costs and fees were reflected, the hypothetical backtested performance results would be lower.
• The hypothetical performance does not reflect the reinvestment of dividends and distributions therefrom, interest, capital gains and
withholding taxes.
• Simulated returns may be dependent on the market and economic conditions that existed during the period. Future market or economic
conditions can adversely affect the returns.