Factor premiums enable investors to diversify and benefit from market inefficiencies

Multi-premia strategies: access to attractive market niches

Persistently low returns are causing some institutional investors to focus even more on portfolio diversification. In the search for suitable solutions, investor focus can also turn to smaller market niches - for example, multi-premia strategies, which aim to achieve capital appreciation with a low correlation to traditional asset classes. Multi-premia strategies offer institutional investors access to a wide range of alternatives across a variety of liquid assets, such as equities, interest rates and currencies, with a global market reach.

Factor premiums exist because assets with certain characteristics achieve additional returns compared to assets that don’t have these characteristics. There are several reasons for this: Human behaviour, such as investors' underreaction or overreaction to market signals, can lead to unusual returns – as can structural restrictions, like the fact that some investors are legally prevented from investing in certain assets. Such imbalances benefit others who are not affected by these restrictions.

Higher return potential with acceptable capital costs

Strategies that use multiple sources to generate factor premiums can potentially bring in returns similar to – or even higher than – alternative lending. Due to their low correlation with traditional asset classes, multi-premia strategies can help to efficiently stabilise a portfolio even in turbulent markets. Capital preservation - without guarantee - is often possible in such uneven phases because the strategy occupies a neutral market position.

For example, if the fundamentals indicate a potential for additional return from Company A over Company B, a strategy could invest €10 million in a long position at A and the same amount in a short position at B.

If the market assessment proves correct and share A rises by ten percent but share B only by five percent, the fund makes a profit – because the value of the long position increases to €11 million while the value of the short position falls to €9.5 million. If, on the other hand, the market should collapse unexpectedly, so that both stocks fall equally by 20 percent, the long position is only worth €8 million, but the value of the short position rises to €12 million. In this scenario, the fund holds on to its initial capital of €20 million.*

* Sample calculation for illustrative purposes only

Our approach to multi-premia

AXA Investment Managers Chorus1 has extensive resources to invest internationally in liquid markets and to constantly identify new sources of factor premiums. In addition, regular analyses are carried out as part of a rigorous, systematic and scientific approach. The goal is to master the risk-return conundrum within a multi-premia strategy. Using new ideas and currently available data, Chorus also continuously identifies new factor premiums and supports institutional investors in taking regulatory capital costs into account for every new strategy.

What are some potential sources of factor premiums?

  • Fundamentals

    Investments with favourable / strong fundamental valuations could outperform investments with expensive / weak valuations.

  • Carry

    Benefits from the tendency for higher-yielding investments to perform better than lower-yielding investments.

  • Momentum

    Seeking out assets that have recently performed well and could continue to do so – or vice versa.

  • Imbalances

    The aim is to take advantage of market imbalances reflected in abnormal returns, for example from structural restrictions on some investors.

  • Sentiment

    Signals that derive future price developments from positive or negative market sentiment among consumers, experts or other economic actors.

1.) Risk Warning: Additional Risks
Ausfallrisiko: Konkurs-, Insolvenz-, Zahlungs- oder Lieferausfallrisiko eines der Kontrahenten des Teilfonds, was zu Zahlungs- oder Lieferausfällen führen kann.
Kreditrisiko: Risiko, dass Emittenten von im Teilfonds enthaltenen Schuldtiteln ihren Verpflichtungen nicht nachkommen oder dass ihr Kreditrating herabgestuft wird, was zu einem sinkenden Nettoinventarwert führen würde.
Auswirkungen von Techniken wie beispielsweise Derivaten: Gewisse Verwaltungsstrategien sind mit spezifischen Risiken wie beispielsweise Liquiditätsrisiko, Kreditrisiko, Ausfallrisiko, gesetzlichem Risiko, Bewertungsrisiko, operationellem Risiko und Risiken in Zusammenhang mit den Basisvermögenswerten verbunden. Der Einsatz solcher Strategien kann auch einen gewissen Hebeleffekt beinhalten, was die Auswirkungen von Marktbewegungen auf den Teilfonds erhöhen und zu einem erheblichen Risiko von Verlusten führen kann.

At AXA IM Chorus:

• We bring together a team of more than 30 high-quality professionals* from both the buy and sell side, as well as expertise from research and technology
• We carefully select and combine different sources of return. These ‘engines’, as we call them, are built in terms of risk, as opposed to their asset class profile
• We place research and technology at the centre of a continuous drive to improve our systematic investment models
• We identify patterns in behavioural finance. In particular we focus on recognising and leveraging the opportunities created by cognitive biases and institutional inefficiencies present within the market
• We exploit new and alternative data sets to inform our investment thinking and provide fresh ideas

*Source: AXA IM Chorus – October 2017
This page is for advertising and informational purposes only and does not constitute an offer to buy or sell any investments or products on the part of AXA Investment Managers or its affiliated companies and should not be considered a solicitation or investment, legal or tax advice. The strategies and/or products discussed herein may not be available in all jurisdictions and/or to certain types of investors. Opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee that forecasts made will come to pass. No guarantee, warranty or representation is given as to the accuracy or completeness of this material. Reliance upon information in this material is at the sole discretion of the reader. This material does not contain sufficient information to support an investment decision. Further important information as well as information regarding the representative and the paying agent of the respective fund are available under important information.