Where do returns come from?
Factors explain stock returns The traditional passive investor invests statistically in a single source of return: the market. However, a number of return sources, so-called factors, exist. For example, the Nobel Prize winner Eugene Fama has shown in one of his most important papers that the shares of small companies (size factor) or low priced stocks (value factor) systematically beat the market and thereby help to better explain return differences between stocks with different characteristics. However, in the traditional passive approach these sources of return are not considered – the investor profits only unconsciously and unsystematically of a fraction of the available drivers of stock returns.
Factors exhibit a positive premium In the past 30 years, academic research has identified additional factors that can achieve significant excess returns over the long-term. While some of these sources of return could be explained by risk exposures (so-called risk premia), they are often rooted in irrational behaviour of investors (so-called anomalies). Nowadays, the generally accepted sources of return, besides the classical market-factor (1), include the factors size (2), value (3), momentum (4), residual momentum (5), reversal (6), low risk (7) and quality (8).
The sources of return reach their full potential only in combination
Cyclical fluctuations Each of these sources of return drives the portfolio return in the long-term. However, the factor premia varies over time, and might have long-lasting and distinct phases of underperformance. Investing in a single factor premia thus requires a very long-term investment horizon and is therefore not a suitable option for most investors.
High diversification potential Thanks to the low mutual correlations among the single factor premia this problem can largely be resolved: Through a combination of the different sources of return, the underperformance periods of the single factors can be avoided. By diversifying across all factor premia the outperformance becomes robust and thus better investable.
The solution: Multi Premia®
Optimal combination of factor premia Multi Premia® combines all major sources of stock market returns in a systematic approach to achieve a robust solution. In addition to the stock market premium, seven factor premia can be systematically harvested. Thus the Multi Premia® solution extends the traditional, passive investment approach in an ideal manner.
Intelligent substitute for a core investment The optimal diversification within the Multi Premia® solution ensures a robust outperformance and a low tracking error. The solution is implemented long-only with physical equity investments. The passive investor receives a smart substitute for a core investment.
The Multi Premia® product range
Equities Switzerland
(in cooperation with the Swiss stock exchange SIX)
SPI ESG Multi Premia®
SPI ESG Multi Premia® is based on the Multi Premia® methodology developed by Finreon and is an official SPI® index of the Swiss Stock Exchange (SIX). The Multi Premia® approach combines seven different factor premia into a robust investment solution that is optimally diversified across individual stocks and factors. The strategy includes 60 of the largest sustainable Swiss stocks. SPI ESG Multi Premia® does not invest in securities with a rating of "C" or lower according to ESG criteria. The solution is available as a fund as well as a customized mandate.
SPI Multi Premia®
SPI Multi Premia® is based on the Multi Premia® methodology developed by Finreon and is an official SPI® Index of the Swiss Stock Exchange (SIX). The Multi Premia® approach combines seven different factor premia into a robust investment solution that is optimally diversified across individual stocks and factors. The strategy includes 60 of the largest Swiss stocks. The solution can be accessed by qualified investors through investment mandates.
World Equities
World Equity Multi Premia®
Finreon World Equity Multi Premia® allows a diversified investment into a broad set of factor premia. The solution invests in approximately 1,000 of the largest developed market stocks worldwide (ex CH). The Multi Premia® approach combines investments into seven different long-only strategies with empirically proven long-term outperformance. The solution is available as a fund as well as a customized mandate.
World Equity Multi Premia® Defensive
World Equity Multi Premia® Defensive solution combines attractive risk characteristics of a minimum variance portfolio with return optimization through systematic factor exposures. The universe of the Finreon World Equity Multi Premia® Defensive comprises about 1,000 of the largest stocks of developed countries worldwide (ex CH). The solution is available via a customized investment fund for pension funds.
Equities US/ Europe
The Multi Premia® approach is available on a mandate basis on the US and European equity markets. We are glad to advise you individually and find the right solution for you.
Dynamic Multi Premia®
Dynamic Multi Premia® is an innovative factor timing approach that systematically rotates between six return drivers while being 100% invested in the equity market at all times. Dynamic management can optimize the absorption of factor premia and limit relative risks. The solution can be invested efficiently and cost-effectively on a mandate basis with an implementation partner of your choice.