Abstract
With the popularity of factor investing and smart beta continuing to rise, many investors have developed an interest in factor timing to make strategic and tactical allocations to factors in order to enhance returns. One measure often used to assess the attractiveness of a factor is its current valuation—using a single-value-factor model to measure whether a particular factor, like low volatility, quality, or size, for example, is overvalued, fairly valued, or undervalued. In his article Factors Timing Factors, published in the 2017 special issue of The Journal of Portfolio Management, Wai Lee, managing director and global head of quantitative investments at Neuberger Berman, questions the utility of employing factors to time factors. He argues that attempting to time factors by using other factors has limited value, and that factor timers would be better served by focusing on the underlying rationale that give rise to a risk premium in the first place.
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