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Whitepaper

Parametric Factor Strategies Methodology

October 9, 2020

Parametric Factor Strategies are designed to provide cost-efficient and risk-controlled exposures to popular factors—such as dividend yield, value, quality, momentum, and low volatility—through transparent, rules-based portfolio construction. Introducing a systematic bias toward these factors has been found to deliver an attractive risk-return profile, but it also introduces additional turnover, which may erode some of that return. Parametric’s approach to factor-based investing is designed to help clients keep more of their investment return through turnover mitigation, active risk controls, and systematic tax management when applicable. 

Parametric uses an optimization process to construct the portfolio in a risk-efficient way by controlling unintended factor exposures. This ensures that exposure to the desired factors is the primary driver of tracking error. As part of this optimization process, we institute constraints versus the market-cap universe to prevent the introduction of unintended sector, security, or country concentration. Parametric Factor Strategies are implemented in separately managed accounts, which allows for additional customization, including tax management.

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