Northern Trust Uses Factor Investing To Mitigate Risk

Investors are not being properly compensated for the risks they are taking, Stephen Potter, President of Northern Trust Asset Management said in a presentation delivered as the Morningstar Investment Conference got underway in Chicago Monday. The panel discussion focused on the importance of factor analysis as opposed to individual stock picking as contributor to returns performance, breaking down risk into three primary categories: investment, reputational and longevity (retirement) risk.

Its been a tough five years for individual stock pickers, as factor analysis is categorized as the next level of the “smart beta” movement

When investors consider risk they typically do so at the individual security level, Bob Browne, Northern Trust’s...