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Unlocking the Return Potential in Factor Investing

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What is the best way to predict success?

In baseball, the game’s strategy was forever changed when Oakland Athletics traded in the standard scout’s intuition for a data-driven approach. It was a switch that eventually led the team to an impressive 20-game winning streak, depicted in the movie Moneyball—it also kickstarted a broader revolution in sports analytics.

Similarly, successful data patterns are also being discovered by experts in the investing world. One such framework is factor investing, where securities are chosen based on attributes that are commonly associated with higher risk-adjusted returns.

Factor Investing 101

Today’s infographic comes to us from Stoxx, and it explains how factor investing works, as well as how to apply the strategy in a portfolio.

Factor Investing infographic

A Selective Approach

There are two main types of factors. Macroeconomic factors, such as inflation, drive market-wide returns. Style factors, such as a company’s size, drive returns within asset classes.

Analysts have numerous theories as to why these factors have historically outperformed over long timeframes:

  • Rewarded risk
    Investors can potentially earn a higher return for taking on more risk.
    • Behavioral bias
      Investors can be prone to acting emotionally rather than rationally.
      • Investor constraints
        Investors may face constraints such as the inability to use leverage.

      Astute investors can capitalize on these biases by targeting the individual factors driving returns.

      The Common Style Factors

      Based on academic research and historical performance, there are five style factors that are widely accepted.

      1. Size: Smaller companies have historically experienced higher returns than larger companies
      2. Low Risk: Stocks with low volatility tend to earn higher risk-adjusted returns than stocks that have higher volatility.
      3. Momentum: Stocks that have generated strong returns in the past tend to continue outperforming.
      4. Quality: Quality is identified by minimal debt, consistent earnings, steady asset growth, and good corporate governance.
      5. Value: Stocks that have a low price compared to their fundamental value may generate higher returns.

      It is becoming more straightforward for investors to implement these factors in a portfolio.

      How Can You Apply Factor Investing?

      All investors are exposed to factors whether they are aware of it or not. For example, an investor who puts capital in an ESG fund—targeting companies with good corporate governance—will have some level of quality exposure.

      However, there are various approaches investors can take to implement factors intentionally.

      Single Factors

      Factors perform differently over the course of a market cycle. For example, low volatility stocks have historically performed well during market downturns such as the 2008 financial crisis or the 2015 sell-off.

      Investors can consider macroeconomic information and their own market views, and adjust their exposure to individual factors accordingly.

      Multi-factor

      Factors tend to exhibit low or negative correlation with each other. For a long-term strategy, investors can combine multiple factors, which increases portfolio diversification and may provide more consistent returns.

      Long-short

      For each factor, there are investments that lie on either end of the spectrum. Experienced, risk-tolerant investors can employ a long-short strategy to play both sides:

      • Hold long positions in attractive securities, such as those with upward momentum
      • Hold short positions in unattractive securities, such as those with downward momentum

      This diversifies potential return sources, and reduces aggregate market exposure.

      Capturing Factors Through Indexing

      Active managers have been selecting securities based on factors for decades. To capture factors with precision, managers must carefully consider numerous elements of portfolio construction, such as the starting investment universe and the relative weight of securities.

      More recently, investors can access factor investing through another method: indexing. An indexing approach provides a framework for capturing these factors, which helps simplify the investment process. Based on objective rules, index solutions provide a higher level of transparency than some active solutions.

      Not only that, their efficiency makes them more suitable as tools for building targeted outcomes.

      The Future of Factors

      In light of indexing’s various benefits, it’s perhaps not surprising that exchange-traded factor products have seen immense growth in the last decade.

      In addition, there’s still plenty of room for factor ETF expansion in equities and other asset classes. Only about 1% of factor ETFs invest in fixed income, and 70% of surveyed institutional investors believe factor investing can be extended to the asset class.

      As solutions continue to evolve, factor products could become the foundation of many investors’ portfolios.

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Markets

Ranked: Which NBA Team Takes Home the Most Revenue?

The Celtics and the Mavericks are the fourth and fifth highest-earning teams in the NBA. We show the top teams in the NBA by revenue in 2023.

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This circle graphic shows the top teams in the NBA by revenue during the 2022-2023 season.

Which NBA Team Takes Home the Most Revenues?

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

The NBA is projected to earn $13 billion in revenue this year before revenue sharing and debt payments, a 11% jump from last season, driving NBA team valuations even higher.

Since 2005, NBA team valuations have increased faster than any other major U.S. league by a wide margin. For perspective, the rise in their combined valuation has exceeded growth in the S&P 500 by more than threefold during this time period.

This graphic shows the top NBA teams by revenue, based on data from JP Morgan Asset Management.

Ranked: The Highest-Earning NBA Teams

Below, we show the revenue of all 30 NBA teams as of the 2022-2023 season:

RankingTeam2022-2023 Season
Revenue
Valuation
1Golden State Warriors$765M$7.7B
2Los Angeles Lakers$516M$6.4B
3New York Knicks$504M$6.6B
4Boston Celtics$443M$4.7B
5Dallas Mavericks$429M$4.5B
6Los Angeles Clippers$425M$4.7B
7Houston Rockets$381M$4.4B
8Chicago Bulls$372M$4.6B
9Philadelphia 76ers$371M$4.3B
10Miami Heat$371M$3.9B
11Brooklyn Nets$367M$3.9B
12Phoenix Suns$366M$4.0B
13Denver Nuggets$348M$3.4B
14Cleveland Cavaliers$348M$3.4B
15Milwaukee Bucks$329M$3.2B
16Atlanta Hawks$326M$3.3B
17Washington Wizards$323M$3.5B
18San Antonio Spurs$319M$3.3B
19Toronto Raptors$305M$4.1B
20Portland Trail Blazers$300M$3.1B
21Sacramento Kings$289M$3.3B
22Utah Jazz$274M$3.1B
23Detroit Pistons$274M$3.1B
24Charlotte Hornets$269M$3.0B
25Oklahoma City Thunder$267M$3.1B
26Indiana Pacers$263M$2.9B
27New Orleans Pelicans$262M$2.6B
28Orlando Magic$261M$3.0B
29Minnesota Timberwolves$259M$2.5B
30Memphis Grizzlies$258M$2.4B

Revenue figures are net of arena debt service and revenue sharing

With $765 million in revenue, the Golden State Warriors are the highest-earning team in the league, thanks to the stellar performances of all-star players Klay Thompson, Stephen Curry, and Draymond Green.

These players were instrumental in driving the valuation of the franchise, which grew from $1.5 billion in 2015 to a remarkable $7.7 billion in 2023. At this valuation, the Golden State Warriors are the second-most valuable sports team in America, following after the $9 billion Dallas Cowboys NFL franchise. Since 2010, the Warriors’ revenue has increased by sevenfold.

Not only did the team have the highest NBA TV ratings in seven of the last eight years as of last season, the Warriors have the largest social media following across U.S. sport franchises, including 32.4 million Instagram followers. By comparison, the Lakers have 24.6 million followers. Adding to this, the team’s jersey patch deal with Rakuten is worth approximately $45 million per season alone.

Ranking in second are the Los Angeles Lakers, earning $516 million in revenue. Over the last decade, revenues have increased by 76% fueled by the star power of LeBron James and the team’s world-renowned brand. In 2021, the team signed a five-year $100 million jersey patch deal with Korean food brand, Bibigo, making it one of the most valuable in the league.

The New York Knicks are third in revenue with $504 million, followed by the 2023-24 season champions, the Boston Celtics with $443 million in the 2022-23 season and the Dallas Mavericks in fifth at $429 million.

How Do NBA Teams Earn Revenue?

Below, we show the primary sources of revenue for the National Basketball Association (NBA):

Revenue Stream2022-2023 Season
Revenue
Share of Revenues
National Revenue
(Media/broadcast deals, merchandise, shared ticket revenue, other sponsorships)
$4.5B41%
Seating/Suites$2.9B26%
Local Media$1.4B13%
Team Sponsorships$1.3B12%
Concessions/Parking/Other$0.9B8%

As we can see, national revenue makes up the league’s largest share, driven by broadcasting and streaming agreements with national providers.

Going forward, these contract values are set to grow substantially. Today, the league is negotiating broadcasting deals with Amazon, ESPN, and NBC worth an estimated $76 billion over 11 years—making the annual contract value 2.6 times higher than its current contract. With NBA viewership up 16% across ESPN and ABC compared to the 2021-2022 season, strong demand is driving bigger media deals. During the 2022-2023 season, average viewership reached 1.7 million per game across these outlets.

Ticket and suite sales, another key source of revenue, topped $2.9 billion over the 2022-2023 season. In some cases, courtside tickets cost upwards of $3,000 per seat, with a host of celebrities from Jack Nicholson to Kendall Jenner and Bad Bunny sitting close to the action.

Following next in line were local media deals, worth $1.4 billion, and team sponsorship deals, valued at $1.3 billion.

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