Factor investing is grounded in the idea that certain company characteristics like valuation, momentum, or operational quality tend to generate long-term excess returns. These traits, however, are not evenly distributed across markets. They cluster in specific sectors depending on macroeconomic trends, regulation, industry cycles and technological disruption.
Our approach to investing offshore is built on this principle: capturing consistent patterns in how markets reward companies with specific characteristics. For example, firms trading cheaply relative to fundamentals often perform well in recoveries (value), while companies with strong financial health tend to hold up in downturns (quality). Each global equity factor plays a distinct role and when combined, they help diversify client portfolios across different market environments. By understanding the distinct character of each factor, advisers can build more resilient portfolios and foster deeper client conversations.
The three pillars: Value, momentum and quality
Each equity risk factor has a unique personality, targeting different types of market opportunities. While factor portfolios provide a systematic view of market exposures, understanding the underlying philosophy of fundamental active managers helps advisers interpret how their exposures may align with factor characteristics and expected performance across market cycles.
The table below provides a clear breakdown of what each factor seeks to capture, where its manifesting in today’s market, and what falls outside its scope.
Seeing the big picture: A sector perspective
When we shift from company characteristics to a sector view, the differences become clearer. Think about the global market as a wheel of sectors, each with a natural tilt toward one or more factors.
This visualisation makes two critical points clear:
1. Factor purity vs. contamination: Low sector overlap in areas like materials or health care confirms the distinct economic drivers of each factor.
2. Convergence points: The shared, though differently motivated, exposure to technology reveals how sectors can express multiple factors simultaneously.
Why this framework matters
For advisers, the true advantage of factor portfolios lies in how they complement one another. Divergent sector tilts reduce correlations and create resilience. For example, momentum’s focus on technology and financials, behaves very differently from value’s exposure to materials and financials. This separation ensures that no single driver dominates, strengthening diversification across the portfolio.
Equally important are the natural boundaries within each factor. Quality avoids fragile small caps with weak balance sheets, value steers clear of expensive ‘glamour’ growth stocks, and momentum leaves behind companies in decline. These exclusions give each factor its identity and provide clarity when managing overlap.
Taken together, these elements give advisers more than just investment outcomes, they provide a language for client conversations. A portfolio isn’t simply a list of stocks, but a systematic strategy grounded in decades of academic research and market evidence. That makes it easier to explain why a client’s portfolio might include gold miners under a momentum strategy, Tencent under a quality approach, or a banking share under fundamental value process. By understanding the drivers of equity factors, advisers can turn the complexity of global markets into something structured, intuitive and trustworthy. For clients, that clarity builds confidence and ultimately, long-term trust.
