Essentials of Factor Investing

This paper provides a clear overview of the foundations of factor investing. It begins with traditional asset-pricing models, explaining how the CAPM links expected returns to market beta and how the APT generalizes this idea using multiple systematic risk factors. It then introduces key equity and macro factors such as Value, Size, Momentum, Low Volatility, and Quality, and explains how they are used in empirical and statistical factor models. The paper also describes how factor insights translate into practical portfolio construction through long-only tilts, long–short strategies, and multi-factor approaches. Finally, it discusses Smart Beta indices as transparent, rules-based implementations designed to systematically capture factor premia in an efficient, index-like format.