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Good Diversification is Never Wasted: How to Tilt Factor Portfolios with Sectors

Author

Listed:
  • Ariane Szafarz
  • Marie Brière

Abstract

Using large-cap exchange-traded funds (ETFs), this paper provides guidance onenhancing the performance of long-only factor portfolios through sector-based blending. The blending method builds ETF portfolios that optimize the factor exposure of sectors. We use the original factors of Fama and French asbenchmarks. The results show that blended portfolios combine the diversification benefits of sector investing with the risk premia of factor investing, and so constitute a promising extension of pure factor ETFs.

Suggested Citation

  • Ariane Szafarz & Marie Brière, 2019. "Good Diversification is Never Wasted: How to Tilt Factor Portfolios with Sectors," Working Papers CEB 19-014, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:sol:wpaper:2013/287753
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    File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/287753/3/wp19014.pdf
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    References listed on IDEAS

    as
    1. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    2. De Moor, Lieven & Sercu, Piet, 2011. "Country versus sector factors in equity returns: The roles of non-unit exposures," Journal of Empirical Finance, Elsevier, vol. 18(1), pages 64-77, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Portfolio management; asset allocation; factor; industry; sector; crisis;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises

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