Factor Investing: How You May Experience it
Why do investments perform the way they do? This is a question many investment experts have been attempting to answer for years. Luckily, factor investing can provide investors with a data-driven understanding.
In this infographic from MSCI, we use scenarios from everyday life to explain how factor investing works.
What is Factor Investing?
Simply put, investors choose stocks based on the “factors”, or characteristics, that help explain investment performance. They are typically aiming for:
- Higher returns
- Lower risk
- More diversification
While you may not have actively incorporated factor investing in your current portfolio, almost everyone will be familiar with the underlying concepts in real life. Here are five common factors and scenarios where you likely experience their principles.
1. Low Volatility Factor
The low volatility factor attempts to capture excess returns to stocks with lower than average risk. This factor has generally performed best during economic slowdowns or contractions.
How you may experience it: If you want a writing career with relatively reliable income, you’ll likely choose to be a marketer at a large company rather than a self-employed author.
2. Quality Factor
The quality factor attempts to capture excess returns in shares of companies that are characterized by low debt, stable earnings growth, and other “quality” metrics. This factor has generally performed best during economic contractions.
How you may experience it: When you’re purchasing new tires for your car, you might consider characteristics like tread longevity, traction, and fuel economy.
3. Value Factor
The value factor attempts to capture excess returns to stocks that have low prices relative to their fundamental value. This factor has generally performed best during economic recoveries.
How you may experience it: If you want a good deal, you may look for items that are on sale.
4. Momentum Factor
The momentum factor attempts to capture excess returns to stocks with stronger past performance. It has generally performed best during economic expansions.
How you may experience it: When you’re deciding what to watch, you may choose a TV show that has high audience ratings. You’ll likely also recommend it to your friends, which further boosts viewer numbers.
5. Low Size Factor
The low size factor attempts to capture excess returns of smaller firms (by market capitalization) relative to their larger counterparts. It has generally performed best during economic recoveries.
How you may experience it: When you’re learning a new sport, you’ll see larger increases in your skill level than a professional athlete will.
Understanding Your Investments With Factor Investing
These simple concepts are at work in your everyday life and in your investments. Targeting these factors can help you meet your investing goals, including maximizing return potential and managing risk.
From 2000 to 2020, here’s how the risk and return of the above factors compared to the benchmark MSCI World Index.
|MSCI World Index||6.6%||15.6%|
Annualized risk and gross returns in USD from December 29 2000 to December 31 2020 for MSCI World Factor Indexes.
All five of the factors have had greater historical returns than the benchmark index, and some have also had lower risk.
With factor investing, you can better understand what drives your portfolio’s performance.
Ranked: The World’s Top Diamond Mining Countries, by Carats and Value
Who are the leaders in rough diamond production and how much is their diamond output worth?
Ranked: World Diamond Mining By Country, Carat, and Value
Only 22 countries in the world engage in rough diamond production—also known as uncut, raw or natural diamonds—mining for them from deposits within their territories.
This chart, by Sam Parker illustrates the leaders in rough diamond production by weight and value. It uses data from Kimberly Process (an international certification organization) along with estimates by Dr. Ashok Damarupurshad, a precious metals and diamond specialist in South Africa.
Rough Diamond Production, By Weight
Russia takes the top spot as the world’s largest rough diamond producer, mining close to 42 million carats in 2022, well ahead of its peers.
Russia’s large lead over second-place Botswana (24.8 million carats) and third-ranked Canada (16.2 million carats) indicates that the country’s diamond production is circumventing sanctions due to the difficulties in tracing a diamond’s origin.
Here’s a quick breakdown of rough diamond production in the world.
|5||🇿🇦 South Africa||9,660,233|
|10||🇸🇱 Sierra Leone||688,970|
|18||🇨🇮 Cote D'Ivoire||3,904|
|19||🇨🇬 Republic of Congo||3,534|
Note: South Africa’s figures are estimated.
As with most other resources, (oil, gold, uranium), rough diamond production is distributed unequally. The top 10 rough diamond producing countries by weight account for 99.2% of all rough diamonds mined in 2022.
Diamond Mining, by Country
However, higher carat mined doesn’t necessarily mean better value for the diamond. Other factors like the cut, color, and clarity also influence a diamond’s value.
Here’s a quick breakdown of diamond production by value (USD) in 2022.
|5||🇿🇦 South Africa||$1,538M|
|9||🇸🇱 Sierra Leone||$143M|
|19||🇨🇬 Republic of Congo||$0.20M|
|20||🇨🇮 Cote D'Ivoire||$0.16M|
Note: South Africa’s figures are estimated. Furthermore, numbers have been rounded and may not sum to the total.
Thus, even though Botswana only produced 59% of Russia’s diamond weight in 2022, it had a trade value of nearly $5 billion, approximately 1.5 times higher than Russia’s for the same year.
Another example is Angola, which is ranked 6th in diamond production, but 3rd in diamond value.
Both countries (as well as South Africa, Canada, and Namibia) produce gem-quality rough diamonds versus countries like Russia and the DRC whose diamonds are produced mainly for industrial use.
Which Regions Produce the Most Diamonds in 2022?
Unsurprisingly, Africa is the largest rough diamond producing region, accounting for 51% of output by weight, and 66% by value.
|Rank||Region||Share of Rough|
Diamond Production (%)
|Share of Rough
Diamond Value (%)
However diamond mining in Africa is a relatively recent phenomenon, fewer than 200 years old. Diamonds had been discovered—and prized—as far back as 2,000 years ago in India, later on spreading west to Egyptian pharaohs and the Roman Empire.
By the start of the 20th century, diamond production on a large scale took off: first in South Africa, and decades later in other African countries. In fact between 1889–1959, Africa produced 98% of the world’s diamonds.
And in the latter half of the 20th century, the term blood diamond evolved from diamonds mined in African conflict zones used to finance insurgency or crime.
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