Viewpoints: A Charles River Conversation

How Factor Models Inform the Investment Process

Differentiating Risk and Return Drivers

Factor models are changing the way investment managers construct portfolios and analyze portfolio risk. Many firms have turned to a factor-based approach because it removes the artificial constraints of asset class definitions, helping managers focus on risk drivers across their entire portfolio. This increases flexibility when making de-risking and hedging choices. By constructing portfolios based on risk factors instead of asset classes, managers can potentially build more efficient portfolios that require less risk to achieve competitive returns. Charles River spoke with Katya Taycher, Managing Director at Charles River, and Dan diBartolomeo, President of Northfield Information Services to explore the multiple roles factor models play in the buy-side investment process.

The Charles River Viewpoints Collection

• The Convergence of Buy-Side Risk and Performance Solutions
• Enabling Growth in a Time of Change: Building a Wealth Platform for the Future
• Evolution of the Smart OEMS: Using Analytics to make More Informed Trading Decisions
• APAC Asset Owners: An Industry in Transition
• Migrating and Managing Investment Technology in the Cloud
• Managing Funds by Strategy: Decoupling from the Back Office
• The Renewed Focus on Households in Portfolio Management (Wealth Management)
• How Factor Models Inform the Investment Process: Differentiating Risk and Return Drivers