Do we Need Active Management to Tackle Capacity Issues in Factor Investing?

OpinioPro Selection
By January 13, 2020 17:40

Do we Need Active Management to Tackle Capacity Issues in Factor Investing?

Blitz and Marchesini (2019) question the investability of factor indices and argue that active management is needed to avoid capacity issues. We show that these claims do not hold. Well-designed implementation rules avoid capacity problems that may arise with poorly designed indices. Pre-announcement of index rebalancing trades eases implementation and helps reduce price impact. Gradual rebalancing allows improving investability of factor indices. Active management is not only unnecessary to improve investability; it also creates hidden risks for investors due to a lack of transparency. 

OpinioPro Selection
By January 13, 2020 17:40

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