Invesco’s Kalivas Sees Investors Turning to Factors

After a rough few years for factor investing, there are many reasons investors should be looking at them now.

Reviewed by: Heather Bell
Edited by: Heather Bell

Nick KalivasNick Kalivas, head of factor and core equity product strategy at Invesco, sat down with’s Heather Bell at the Exchange conference to talk about how investors should look at factors in the current market environment. What's going on with factors right now?  

Nick Kalivas: The yield factor and low vol did well [last year], and so did value. Growth and large or mega cap were the laggards. But all the rewarded factors outperformed: size value, momentum, quality, low volatility—it was a good year for factors. 

Yield was pretty close to flat on the year or higher, depending on the strategy. We had a lot of dispersion. We have the [Invesco S&P Ultra Dividend Revenue ETF (RDIV),] which was up 7%. 

And then you think about the Invesco QQQ Trust (QQQ) and growth being down, more than 30%. Has there been a move away or toward factors in the last few years? 

Kalivas: I think in the last year and a half [to] two years [there has] been more of a focus on factors. I think from February 2017 to before the vaccine came out was really a period where factors struggled, because the market was being led by just those big megacap names that were generating outsized returns.  

Factor indexes are either factor weighted or factor-times-market-cap-weighted. When those really big names gain concentration in the cap-weighted [indexes], it tends to create a headwind to factors and that trend seems to be reversing somewhat.  

Given the dispersion in returns last year and the sell-off in the megacap names that have now proved more normal, not invincible, people are looking at factors more intently.  

I think the other thing that's helpful for factors is that if you look at the overlap between the S&P 500 and the Nasdaq-100, it's been rising over time.  

Last year was a correction in that trend, but the trend is still up. And that overlap is an indication that the S&P 500 has become more growth-[oriented], and investors are looking at factors as a way to manage that. Factors will continue to be useful, because you see stretched valuations, or the valuations are still kind of high in large cap. In the S&P 500, the concentration in those top 10 names is still historically high. 

You have concentration risk, you have valuation risk, and you have kind of this growthy tilt towards market cap. If people can use factors to mitigate that, like with the Invesco S&P 500 Equal Weight ETF (RSP), [which is equal weight] or you could revenue weight; you could mix in some low volatility. There are a number of ways to manage that, depending on what your objective is, or how you want to make your investments. How should investors be positioning themselves in 2023? 

Kalivas: I think factors really help you create a more efficient, durable core of the portfolio. What I tend to suggest, because I think it's very hard for the average advisor to time their investments in factors, is maybe three or four aggressive ones, or mix them together and just periodically rebalance them.  

What you'll see over time is that the excess return curve oscillates, and at different times. You'll see something like low vol doing very well, [but] maybe momentum is not. Or you'll see quality doing well, and maybe value is not or vice versa.  

There's a lot of yin and yang that goes on between the factors, and the idea would be to harvest that long-term premium that factors offer over the cycle, and then in the short term, have them put together in a way where they're managing or diversifying risk. I know some factors tend to go well together. What are some of those pairings? 

Kalivas: Typically, momentum and value have low excess return correlation. Low volatility and momentum are a good kind of pair. I would say quality and value; low volatility and size; equal weight and momentum.  

If you want to be defensive, you could do something like low vol, momentum and quality. If you want to be more offensive, you could do size, value and quality. Those are the types of common conversations you have.  

Momentum is probably the most unique of the factors because it's less economic sensitive, and it's more market sensitive.  

Is the trend clear? If that's the case, momentum thrives. And if the trend is changing, if the leadership in the market is shifting around a lot, you're going to get chopped up, or you're going to be off. You've seen that this year, whereas last year, energy and health care were strong momentum.  

And then we get into January and nobody wants those more defensive positions, so momentum is probably the worst-performing in January, because the leadership of the market changed. 

Now, it's been a powerful strategy over long periods of time. It's a rewarded factor. The academics talk about it; practitioners see that. And I think that the interesting part in the conversation is when people think about momentum, they're always thinking about areas like technology and “go go growth,” and they forget that momentum could also have some defensive characteristics in a bear market.  

What's interesting about factors and investing is you don't want to let your personal biases taint the realities of the factor.  


Contact Heather Bell at [email protected] 

Heather Bell is a former managing editor of She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.