Storebrand outlines its multifactor approach to risk

Jonathan Boyd
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Storebrand outlines its multifactor approach to risk

With multifactor investing increasingly being discussed as a way to deal with duration and interest rate risk through the coming year, InvestmentEurope has caught up with Bård Bringedal, head of equity at Storebrand Asset Management, to discuss the manager’s Multifaktor strategy.

What led to the creation of Storebrand Global Multifaktor?

Our team has managed factor-based equity strategies since 2006. In the beginning, we used the value and momentum factors. In 2011 we implemented a low-volatility strategy. Currently our product range includes single factor funds targeting the value and low volatility risk premia, in addition to the multifactor fund.

In our view, one-factor products are great either for tactical allocation or for investors with a high conviction in one particular factor. On the other hand, a multifactor product gives protection against timing risk in the sense that it reduces the risk of suffering from not owning the winning factor. For instance, over the last few years, up until this summer low-risk-strategies showed a strong performance, whereas value-strategies suffered. For investors with a one-factor exposure to value only would have had some rough years. However, since this summer the table has turned, and low-risk investors have underperformed significantly, while value has had one of it’s strongest periods on record. Thea idea behind our multifactor product was to combine four factors with very attractive return potential, but with high risk versus the benchmark, into one combined fund which keeps the return but reduces the risk through factor diversification and consistent risk management.

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What is the status of demand for multi-factor funds in the Norwegian market currently?

Historically, there has been a broad range of one-factor funds in the market, either marketed explicitly as such, or as a fundamentally managed fund with a factor-based screen. The largest success In this category has been low-risk strategies, showing strong inflows over the last 3-5 years. However, there has been an increasing awareness of the risk with one-factor strategies, both in terms of timing risk and the risk that one single factor might for some periods be exposed to crowding risk due to large, persistent inflows. As a response to this, the idea to diversify between several factors has in our view been the hottest topic in the world of factors over the last two years.

This has led to an increasing demand for multifactor funds, both in Norway and abroad. As an illustration to this increasing demand, we can mention that our fund has grown from about NOK1bn when we implemented the strategy on the 1st of November 2013 to NOK9.5bn today.

What type of investor do you particularly target with your multi-factor strategy?

Basically, any investor aiming for consistent outperformance versus MSCI World, and who appreciates the value of diversification. The fund aims to deliver a 2-3% outperformance net of fees (0.75% p.a.) per year, with a moderate tracking error due to factor diversification.

Are you targeting distribution into other European markets, and if so, what distribution method is used, eg, via a Sicav structure?

Storebrand Asset Management AS, as well as our subsidiary, SPP Fonder AB in Sweden, has so far taken a Nordic approach to distribution in general. All our funds are domiciled in either Norway or Sweden at the moment. A future option could be to establish a Sicav structure if this is what continental European investors require, but for now we will stick to our Nordic business model as this is not a show stopper for many international investors.