Investing with Style: The Case for Style Investing

Investors are bombarded by a variety of investment strategies and alternatives from an ever-growing and increasingly complex financial industry, each claiming to improve returns and reduce risk. Amid the clamor, academic and practitioner research has sifted through the vast landscape and found four intuitive investment strategies that, when applied effectively, have delivered positive long-term returns with low correlation across a multitude of asset classes, markets, and time periods using very liquid securities. These four investment “styles” are Value, Momentum, Carry, and Defensive, which form the core foundation in explaining the cross-section of returns of most asset classes. In this paper, the authors describe “style investing,” discuss the intuition and evidence for the four pervasive styles, and detail how to implement a strategy that can access these premia to improve the risk and return characteristics of traditional portfolios.