Hello. I would like to understand how IE decides how much of the managed portfolios to allocate to Factors (I think its around 30%). This is a more conservative allocation than I use and would be interested to know why IE chooses the factor weighting it does?
Thanks.
Hi! Our factor weightings are designed to provide diversification away from market beta.
However, due to the cyclical nature of individual factors, especially as we remain aware some clients will still be monitoring the performance of individual holdings rather than at the portfolio level, we do not want our factor allocations to become too large a portion of portfolios.
We therefore must balance the benefits of factor investing against clients’ likely ability to remain invested - either due to factor underperformance or due to significant deviations from the global market.
Given one of our primary responsibilities is to create portfolios clients are able to stick with (to ensure they are able to reap the rewards from long-term investing), we believe our current weights provide an attractive balance for investors.
Thank you for the Reply. I suspected this might be the reason and it makes perfect sense the way you explain it.
Regards