Factor index construction is currently a widely discussed topic among institutional investors and asset managers, particularly whether the construction of multi-factor indexes should be top-down or bottom-up. In this paper, we compare the exposure and diversification outcomes of multi-factor portfolios that use a composite index, a composite factor and a multiple tilt approach to index construction. Read it to find out which approach exhibits the higher factor exposures for any levels of correlation and for both concentrated and diverse portfolios.

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