New Developments: Trend and Risk-Factor Investing

Abstract

Investment strategy is a field whose range has expanded rapidly in recent years and continues to do so. We have, for example, seen ever more intricate quantitative models, a growing acceptance of more diverse asset mixes, a greater understanding of so-called ‘alternative’ asset types, and in some quarters a focus on risk rather than reward. Some of these developments have been sensible and beneficial, but others less so. Two approaches that are still relatively novel merit special mention. One of these is an exposure-based investment strategy, which relates to specific types of possible exposure or risk. The other is trend investing. The former is largely, though not entirely, confined to indirect investors — those who seek coverage of an area through investment vehicles and fund managers, while the latter is more appropriate for those who seek direct asset exposure.