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What are factors in simple terms
Back to topic: Tutorials on investing and portfolios


July 2024 · 5 min read

Factor investing explained


When equity literature refers to factors and investing, they are really referring to style factors. Factor investing is a rules-based approach that consists of grouping stocks where each of the stocks share common financial properties. These properties can be

  • related by common fundamental balance sheet items
  • based on historical performance
  • statistical properties of stock returns

Factors are a means of grouping together stocks into portfolios where, it has been shown through history that, investing in these portfolios would have given investors a source of consistent risk-adjusted returns.

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