More than a half-century of academic research has shown that significant portions of returns from actively managed strategies can be explained by exposure to certain factors, such as value, momentum, and quality. Portfolios based on these quantitative characteristics, known as smart or strategic beta strategies, have historically generated relatively high average returns and represent a new dimension of systematic risk.

In a recent white paper co-authored with Christopher Polk, Professor of Finance at the London School of Economics, we argue that understanding the economic drivers of these new systematic risks brings novel insights about how to time factor bets. In particular, market-timing strategies based on more timely forecasts of aggregate fundamentals can be leveraged through a smart beta lens.

In the paper, we demonstrate how dynamic factor strategies that exploit this insight have delivered a significant, long-term performance benefit over static factor approaches and the benchmark. Read the white paper to learn more about how the business cycle impacts factor returns.