Factor investing is an investment strategy in which securities are chosen based on attributes that are associated with higher returns. Factor investing requires investors to take into account an increased level of granularity when choosing securities; specifically, more granular than asset class. Common factors reviewed in factor investing include style, size, and risk. — Investopedia
Some funds have outperformed the market by focusing on factors with higher expected returns
Academic research has identified key factors which point to differences in expected returns over the long term. In a factor-based approach, capturing such differences does not involve predicting which stocks, bonds, or market areas are going to outperform in the future. Rather, the goal is to hold well-diversified portfolios that emphasize the attributes of higher expected returns. This is done by overweighting or underweighting securities (companies) compared to their market weight.
As an additional dimension, sustainability-oriented factor strategies overweight, underweight or exclude companies based on their carbon-intensity and sustainability scores.