Factor Based Investing
Factor based investing is an investment approach that involves targeting quantifiable characteristics,
or ‘factors’, that can explain differences in stock returns.
Factor investing — sometimes called smart beta investing — is an evidence-based approach to building diversified, systematic portfolios.
For financial advisers, it offers a clear, repeatable framework that helps explain performance, improve client trust, and help deliver strategies backed by decades of independent research.
What is Factor Investing?
Factors are measurable characteristics — such as value, size, or momentum — that help explain differences in returns across markets.
Unlike traditional active stock picking, factor investing is a rules-based, transparent, and cost-effective approach. This makes it an ideal tool for advisers seeking long-term investment strategies for their clients.
The Five Key Factors in ebi’s Earth Portfolios
ebi’s Earth Portfolios tilt towards five widely recognised factors, each backed by long-term academic research:
Value
Often outperforms
during recoveries
Favouring undervalued companies that have historically outperformed overtime (though not in every period).
Momentum
Works best in
strong markets
Capturing the tendency of winning stocks to continue rising.
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Quality
Tends to perform
during downturns
Focusing on companies with strong balance sheets and stable earnings.
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Size
Has historically done well over long cycles when
smaller companies grow faster
Offering accessible materials to explain key investment terms and concepts to clients, empowering them to make informed decisions.
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Minimum Volatility
In times of market stress, helps cushion
portfolios by mitigating losses
Exploring how psychology impacts investor behaviour, helping advisers guide clients through emotional biases & improve decision-making.
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For a factor to be considered it must be:
PERSISTENT
It works across long periods of time and different economic regions.
PERVASIVE
It works across countries, regions, sectors and even asset classes.
ROBUST
It works for a variety of factor definitions and survives rigorous testing.
INVESTABLE
It works not just on paper, but also after considering implementation issues like trading costs.
INTUITIVE
There are logical risk-based or behavioural-based explanations for for its premium and why it should continue to exist.
Get in touch to learn more
To learn more about ebi’s factor based investing approach, contact our team.
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Why advisers use Factor Investing
For financial advisers, factor investing offers:
Client-ready narratives
Easy-to-explain frameworks that can help with client conversations.
Diversification
benefits
Factors perform differently across cycles, smoothing returns.
Operational
efficiency
ebi handles implementation, freeing adviser time for client service.
For financial advisers, factor investing offers a balance between active and passive investing — delivering higher return potential than market-cap benchmarks while maintaining cost-efficiency.
Supporting Advisers with Client Communication
ebi provides advisers with ready-made client communication tools, including:
Infographics
Client-friendly factor investing infographics.
Performance Data
Charts on factor performance.
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Commentaries
Quarterly market commentaries explaining market and factor behaviour.
Download our factor based investing
infographic pack
Our factor investing infographic pack includes an introduction to ‘What is Factor Investing?’ as well as dedicated visuals for each of the five factors that ebi targets.
Each factor infographic combines a clear definition with an everyday example to make the concept intuitive and easy to explain.
Frequently Asked Questions about Factor Investing
1. What is factor investing in simple terms?
Factor investing is an evidence-based investment strategy that targets specific drivers of return — known as factors. These include value, momentum, quality, size, and minimum volatility. By tilting portfolios towards these factors, investors can improve diversification and long-term outcomes.
2. How is factor investing different from active and passive investing?
Factor investing sits between active and passive. It is rules-based and systematic like passive but aims to capture return drivers beyond simple market exposure, like active.
3. Is factor investing suitable for every client?
No. While it suits many investors, advisers must assess time horizon, risk tolerance, and behavioural resilience, as factors may underperform for extended periods.
4. What risks should clients understand?
Some factors, such as Size or Momentum, may involve greater volatility. Past outperformance does not guarantee future returns, and losses are possible.
5. How does ebi implement factor investing?
Through disciplined, lower-cost, globally diversified portfolios that embed long-term factor tilts without market timing.
6. What factors does ebi favour?
More than 600 factors have been identified. ebi’s evidence-based investing approach identifies five key factors which it uses within its Earth Portfolio Suite.
Low Volatility – preferring more stable stocks.
Value – investing in undervalued companies.
Momentum – favouring recent outperformers.
Quality – tilting towards financially strong firms.
Size – allocating to smaller companies.
Helping our advisers succeed
“I have been working with ebi for around 5 years and had some great support over that period. Their proposition has evolved alongside our own investment philosophy. Their ability to work really well with some of the best advisory platforms is a real benefit to us. I have recommended their investment services to my peers and will continue to do so.”
Richard, Bristol
Disclaimer
The value of investments can go down as well as up and it is possible to get back less than the amount invested. Past performance is not a reliable indicator of future performance.
Factor investing may not be suitable for all clients.