Factor investing

What is factor investing

Factor investing is an investment strategy that selects stocks or other assets based on specific characteristics — so-called factors — that are believed to deliver above-average returns over the long term. These factors are identified using historical data and statistical analysis.

Unlike traditional passive investing, which tracks indices, factor investing focuses on a targeted selection of securities with specific traits.

The main investment factors

• Value — investing in undervalued stocks according to metrics such as P/E ratio, P/B, or P/FCF.
• Size — a preference for smaller companies (small caps), which tend to have higher growth potential than large firms.
• Momentum — investing in stocks with a positive price trend (momentum investing).
• Quality — selecting companies with high ROE, stable earnings, and low leverage.
• Volatility — strategies focused on low volatility, which seek out more stable stocks.

Advantages of factor investing

• The potential to achieve higher long-term returns than the market.
• Better risk control through the combination of different factors.
• Flexibility — investors can choose factors that match their strategy.

Risks and limitations

• The results of factors can vary over time and some factors may temporarily underperform.
• Excessive concentration in a single factor can increase portfolio risk.
• Historical performance of factors is no guarantee of future returns.

Factor investing on the Stonkee platform

On Stonkee, investors can analyze stocks by individual factors and combine them into custom strategies. AI evaluates which factors currently offer the best risk/return profile and suggests their optimal weight in a portfolio.

Summary

Factor investing is a sophisticated approach that uses long-validated characteristics of stocks to achieve higher returns. Used correctly, it can significantly improve risk-adjusted portfolio performance.