Korea Capital Market Institute

Factor investing refers to the investment decision-making based on factors that affect the performance of an asset or a portfolio. It is usually known that factors provide systematic premiums to compensate for the risks inherent in the asset or portfolio. Accordingly, factors are employed in the asset management process like strategic or tactical asset allocation, and performance evaluation on the fund manager or portfolio. Moreover, factor investing can be used in delivering tailored investment advices or wealth management services to different types of investors. It could also contribute to diversifying fund products in Korea as a useful means for active investment strategy. In fact, the analysis on the performance of publicly offered domestic stock funds confirms the possibility that actively managed domestic stock funds could perform better with factor investing. Therefore, the Korean asset management industry should seek ways to utilize factor investing, thereby enhancing the intended role of publicly placed funds as an efficient tool for wealth management to individual investors.