Keeping it filtered: Why ESG does not qualify as a factor yet and why value still does

Conscience, not return expectation, must drive portfolios

Factor investing is an approach that systematically targets specific, known, persistent drivers of return across markets. Academic studies have revealed that stocks and bonds displaying certain characteristics have historically provided higher returns than the broader market.

Factor investing is not new. Its heritage dates from the 1970s when the idea of multi-dimensional risk factors was first introduced. But the discipline has received renewed attention recently for a couple of reasons, including the recent poor performance of some factors and the emerging debate over whether ESG should be regarded as a factor. So, what are the fact(or)s? Over the decades, hundreds of purported factors have been identified by the industry, a frenzy that has somewhat detracted from the validity of the approach. But most of these are little more than short-term style tre...