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Matthias Knab, Opalesque:

AB (AllianceBernstein L.P.) writes on Harvest Exchange:

Equity factors are increasingly used by investors to help guide their portfolio allocations. So it's important to have a good grasp of what factors are and how they perform through an economic cycle, in order to invest effectively.

Choosing the right equity portfolio is a very personal matter. Individual tolerances for risk, and return expectations, are usually the starting point. Personal views on stock market patterns, the earnings environment, corporate and industry trends, and increasingly the macroeconomic outlook also shape an equity allocation decision. These days, finding a portfolio that reflects an investor's views often draws on equity factors.

THREE BROAD CATEGORIES

But what does factor investing really mean? Simply put, factors are characteristics of stocks that are associated with higher return potential, and are usually grouped into three broad categories:

• Size-e.g., smaller companies with a market capitalization of typically $5 billion or less, versus larger-cap stocks
• Style-growth companies with high year-over-year earnings growth, as compared to value stocks with low price-to-book-value ratios
• Risk-low-volatility stocks have lower beta than the market, meaning their performance is typically more stable t......................

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