What it means
Academic research has identified persistent risk premiums - value, momentum, size, quality, low volatility - that explain a large share of equity returns. Factor investing systematically tilts portfolios toward these factors.
Why it matters
Most 'alpha' from active managers is actually factor exposure. Once you can buy these factors cheaply through ETFs, the active manager's edge has to come from somewhere else.
How to use it
Decide which factors fit your time horizon. Value works long-term but can underperform for years. Momentum works in stable trends but crashes during reversals. Diversifying across factors is the prudent approach.
Take it further
Want a worked example or a deeper dive? Ask Rocky how this concept applies to your specific watchlist or trade idea.
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