Factor Investing – An Investor’s Guide to Our Compass Portfolios
For years, investors have faced a familiar choice: passive investing versus active investing. Passive strategies (like index funds) offer low costs and simplicity, but they merely track the market. Active strategies bring professional selection of investments, but often at higher fees and with mixed results. Today, a third approach is bridging this gap and gaining traction – factor investing. This evidence-based method uses data and systematic rules to capture the benefits of active decision-making while retaining the discipline of passive investing. In simple terms, factor investing tilts a portfolio towards certain proven characteristics (or "factors") that can enhance returns or reduce risk over time. It’s a smarter, more research-driven way to invest, and it’s the approach we use at Mitchell & Mitchell Asset Management in our flagship Compass range of portfolios.
This guide will explain what factor investing is in plain language, highlight its benefits, and show how we deploy it within our Compass portfolios through our partnership with SEI. By the end, you’ll understand why we believe this approach is a clever and unique advantage for our clients’ investments.
What is Factor Investing?
Factor investing means structuring your investments around specific factors – quantifiable traits of investments that have historically been linked to better performance or lower risk. Instead of simply buying "the market" or relying on stock-picking hunches, factor investing systematically tilts your portfolio toward these favourable characteristics. It’s a rules-based strategy rooted in decades of financial research, but it can be described without jargon: it’s about investing in what works, based on evidence.
Common investment factors that we focus on include:
Value – Investing in companies that appear undervalued. These are stocks that trade at a low price relative to their fundamentals (such as earnings or assets). The idea is that bargain-priced companies may have greater upside potential over time, as the market corrects their undervaluation[1].
Quality – Investing in businesses with strong financial health. These tend to be companies with solid balance sheets, stable earnings, and prudent management. High-quality firms can be more resilient during economic stress, which can make their stock performance more stable[1].
Momentum – Investing in companies that are performing well recently. This factor involves owning stocks that have exhibited strong upward price trends (and often positive recent earnings growth). Momentum is based on the observation that stocks on the rise tend to keep rising – at least for some period – due to investor behaviour and supportive news[1].
Low Volatility – Focusing on stocks that show steadier, lower swings in price. These are companies with historically less fluctuation and more predictable performance. A low-volatility approach aims to give a smoother ride – avoiding the wild ups and downs – and has often achieved comparable returns to the broader market with less risk[1].
Each of these factors represents a different angle on what makes an investment attractive. By targeting such factors, factor investing takes a scientific, data-driven approach: it looks at measurable traits that have been rewarded over long periods, rather than relying on forecasts or market hype. In essence, it’s about stacking the deck in your favour with attributes that have proven their worth.
Why Factor Investing?
Why embrace factor investing? Put simply, it offers a structured way to improve returns and manage risks by learning from long-term market patterns. Here are some key benefits of factor investing for you as an investor:
Research-Backed Results: Factor investing is grounded in extensive research and historical data. Decades of academic and industry studies have identified that certain characteristics – like value or quality – tend to yield better performance over the long run[2]. This isn’t a passing fad, but a methodology built on time-tested evidence.
Higher Potential Returns: By actively tilting towards rewarded factors, a factor-based portfolio seeks to outperform a plain market index. For example, value stocks (though out-of-favor at times) have often delivered superior returns in the long term. A well-designed multi-factor strategy aims to capture these return premiums in a cost-efficient way[2], giving you a better chance of growth than simply "buying the market".
Improved Diversification: Each factor has its own cycle – there will be periods when value shines and others when momentum leads, for instance. A crucial benefit of factor investing is that it combines different factors to spread out risk. When one factor is lagging, another may be thriving, so a multi-factor portfolio can smooth out the ups and downs. This diversification across factors can result in a more stable journey for your investments[3][4].
Risk Management and Downside Protection: Many factor strategies inherently favour more resilient investments. The quality and low-volatility factors, for example, tilt towards companies that can better weather economic storms or exhibit gentler price swings. By including these defensive traits, factor investing can provide a measure of downside protection – helping to shield your portfolio when markets turn turbulent. Overall volatility can be kept in check without sacrificing returns[5].
Disciplined, Systematic Approach: Factor investing replaces knee-jerk reactions with a rules-based process. It imposes discipline – decisions are driven by data and a consistent strategy, not by headlines or hype. This removes emotion from the equation. Investors often fall into the traps of chasing hot stocks or panic-selling; a factor strategy avoids these pitfalls by sticking to a proven framework. In the long run, this discipline can enhance performance by preventing common mistakes.
Efficiency and Cost-Effectiveness: Thanks to modern technology and index products, factor strategies can be implemented efficiently. In many cases, factor investing is cheaper than traditional high-octane active management – it doesn’t require star stockpickers making expensive bets, but rather uses systematic techniques that can be scaled. This means you get a lot of sophistication per pound of fees. In our Compass portfolios, we keep costs competitive while still actively managing the factor exposures, striving to give you value for money alongside value investing[2].
In summary, factor investing offers a best-of-both-worlds approach. It’s active investing (because we’re intentionally deviating from the market index in pursuit of better outcomes) but it’s rules-based and evidence-led rather than speculative. It gives us a way to pursue extra return and reduced risk in an increasingly complex market landscape[6]. For investors, it means your portfolio isn’t just drifting with the market currents – it’s being navigated using tested signals that aim to keep you on course toward your financial goals.
Our Compass Portfolios: Factor Investing in Action
At Mitchell & Mitchell Asset Management, factor investing isn’t just an abstract concept – it’s at the heart of how we manage money. Our Compass range of portfolios is built from the ground up on a factor-based approach. This is our flagship service for clients, comprising five risk-rated model portfolios (from Conservative to Adventurous). Each one is a globally diversified mix of investments tailored to a certain risk level, and each one uses factor investing principles to enhance performance and resilience.
We designed the Compass portfolios as fully active, conviction-led strategies, but with a firm foundation in research and discipline. Every Compass portfolio is reviewed quarterly by our investment team and adjusted as needed to stay aligned with its objectives[7][8]. We don’t make wild bets; we make thoughtful, evidence-based tweaks. A core part of that evidence is factor analysis. Specifically, the Compass portfolios are optimised to tilt toward factors such as value, momentum, and quality[9] (with exposure to low-volatility stocks as well). Rather than simply holding a market index (which might be dominated by a few large companies), our portfolios deliberately emphasize these traits across many holdings. It means, for example, that we’ll hold a broad spread of companies that score well on value or quality metrics – not just the popular growth darlings of the day.
What does this look like in practice? Imagine a year when stock markets are driven by a frenzy for high-flying tech shares. A traditional index fund will become heavily concentrated in those few names, which can be risky if that trend reverses. In contrast, our Compass portfolios, by virtue of factor investing, maintain balance. They will own some of those successful tech stocks (thanks to the momentum factor), but they will also hold plenty of economically priced shares (value factor) and financially solid businesses (quality factor) across various sectors. This diversified factor exposure allowed our portfolios to participate in market gains without undue concentration risk in any single sector or style[5]. The factor-based approach provides built-in risk control: we avoid over-reliance on any one type of investment. When the market leadership shifts – as it inevitably does – the portfolio doesn’t miss a beat because it already holds the next potential winners identified by a different factor.
Another key aspect of Compass is dynamic asset allocation. While the long-term strategy is anchored by factor tilts in equities, we also adjust the mix of asset classes in response to market conditions. For instance, if bonds or other assets become more attractive relative to stocks, we can tactically rebalance to seize those opportunities (always within the risk limits of the portfolio). We even include alternative investments like hedge funds in some models to add further diversification[10]. This dynamic overlay means the portfolio is not static – it can adapt to changing economic weather, guided by our investment committee’s outlook. Crucially, any adjustments are made in a systematic, factor-aware way, preserving the integrity of the strategy.
To put it all together, our Compass portfolios use factor investing as a guiding compass (no pun intended) to navigate the market’s ups and downs. By harnessing multiple factors, we aim to deliver more consistent outcomes for clients – capturing upside in a variety of conditions while smoothing out the ride[3][11]. Each factor has seasons of strength, so by combining them, the portfolios seek to perform steadily across different market cycles. This approach is clever and unique because it takes institutional-caliber techniques (once the domain of large pension funds) and applies them in a practical, client-friendly way. The end result for you, as an investor, is a portfolio that’s globally diversified, risk-managed, and positioned to benefit from proven drivers of return – rather than relying on luck or short-term market timing.
The Role of SEI: Bringing Institutional Expertise
We’ve talked about the strategy – now let’s talk about the partnership that helps make it possible. Mitchell & Mitchell Asset Management is proud to partner with SEI, a world-leading investment firm, to deliver the Compass portfolios. SEI is not a household name to many retail investors, but in the financial industry it’s highly respected: SEI provides investment services and technology to institutions and advisors around the globe, and as of mid-2025, it oversees roughly $1.7 trillion in assets for its clients[12]. In short, SEI has the scale and clout of a major global player. We leverage that strength for the benefit of our clients.
Our partnership with SEI gives us (and you) several distinct advantages. First, access to top-tier fund managers: Through SEI’s platform, we can allocate parts of the portfolio to specialist investment managers and boutique funds that individual investors normally cannot reach[13]. Many of these managers have strong track records in specific niches – for example, an emerging markets value equity specialist, or a quantitative credit strategy. SEI performs rigorous due diligence and brings a curated selection of these institutional managers into our model. This means your Compass portfolio isn’t limited to the usual mainstream funds; it’s tapping into a diverse pool of talent typically reserved for large institutions. You effectively get institutional-grade diversification in your portfolio.
Second, robust oversight and risk management: SEI contributes an institutional framework to monitor and control risk in the portfolios. They assist with advanced tools like stress testing and scenario analysis on our models[14]. For example, we regularly examine how the Compass portfolios would fare under various hypothetical events (recession, interest rate spikes, etc.) to ensure we stay within comfortable risk bounds. SEI’s risk experts provide an independent layer of scrutiny, helping us verify that the factor exposures and asset allocations remain appropriate for the level of volatility we intend to target. This oversight is invaluable – it’s like having an extra pair of eyes (actually, an entire team of analysts) watching over your investments to keep them on course.
Third, operational excellence and innovation: SEI’s cutting-edge technology platform helps with the efficient execution of our strategy. Portfolio rebalancing, trading across multiple asset classes, and implementation of tactical shifts are all supported by SEI’s systems. This behind-the-scenes efficiency reduces costs and errors, ensuring that our investment intentions translate smoothly into the actual holdings in your account. Additionally, SEI’s Quantitative Investment Management team continuously researches factor strategies, which means we stay at the forefront of any enhancements in the field. (For instance, SEI’s research helps refine how we identify a “value” stock or how we avoid so-called value traps by incorporating quality screens – these are sophisticated touches that keep the strategy smart and adaptive.)
In essence, our relationship with SEI supercharges our factor investing approach. We bring the local knowledge, personalised client focus, and tailor-made portfolio design; SEI brings global resources, deep research, and a network of high-quality managers. The combination allows Mitchell & Mitchell to punch well above the weight of a boutique firm, delivering a service that competes with the best in the industry. It’s a partnership built entirely around enhancing outcomes for our clients. By exploiting our partnership with SEI, we’ve made factor investing not just a concept, but a practical reality for you.
Conclusion
Investing can often feel like navigating a vast ocean of information and unpredictable currents. Factor investing is the navigational tool – the compass – that we use to chart a steadier course for our clients. It aligns your portfolio with fundamental drivers of return that have proven themselves over time, rather than leaving you at the mercy of market whims. A factor-based approach offers clarity and confidence: we know why we hold each investment (because it has the desired traits), and we know how each part of the portfolio should behave in different conditions.
For our clients in the Compass portfolios, this approach translates into a tangible benefit: peace of mind. While no strategy can eliminate market volatility or guarantee a profit, factor investing aims to make the ride less bumpy and more rewarding in the long run. By staying invested in a diversified set of factors and assets, our clients are positioned to weather storms and benefit from recoveries without having to make sudden, risky changes. Patience is consistently rewarded – a fact highlighted by market history and embedded in our process[15][16].
In summary, factor investing is a clever and unique strategy that we’re proud to employ on your behalf. It’s not about chasing the latest trend; it’s about leaning on time-tested insights to give you an edge. Through the Compass range, we have turned those insights into a robust, real-world portfolio solution. And through our partnership with SEI, we ensure that this solution is executed with world-class expertise and oversight. Few investment offerings combine this level of academic rigor, practical diversification, and institutional quality in a package designed for everyday investors.
As you plan your financial future, know that your Compass portfolio is guided by a disciplined philosophy aimed at delivering consistent progress toward your goals. Factor investing is our way of keeping your investments aligned and on course, even as markets change direction. We believe this approach offers a durable advantage to our clients – helping you not only aim for better returns, but do so with greater confidence and understanding of what drives those returns. In the end, that’s what we seek to provide: a smarter investment journey that gives you the best chance of long-term success.
Sources:
SEI Investments – “Factor investing: a modern blueprint for advisors” (October 2025)[17][2] – Explains the concept of factor investing as a disciplined, systematic form of active management and outlines its research-backed benefits.
Mitchell & Mitchell Asset Management – Compass Range Description (2025)[9][13] – Details how the Compass portfolios are tilted towards factors like momentum, quality, and value, and how the partnership with SEI provides access to institutional managers.
Mitchell & Mitchell Asset Management – “End of Summer Market Outlook” (August 2025)[3][5] – Illustrates the factor-based approach in action, combining multiple factors to deliver consistent outcomes and reduce concentration risk during varying market conditions.
SEI Press Release – About SEI (October 2025)[18] – Provides background on SEI as a global provider of asset management services, including scale of assets managed, underscoring SEI’s credibility and resources supporting our partnership.
Mitchell & Mitchell Asset Management – Investment Philosophy (2025)[19][14] – Describes the role of SEI in manager selection and risk oversight, ensuring that portfolios benefit from institutional-quality management and remain within defined risk parameters.
[1] [2] [6] [17] Factor Investing: A Modern Blueprint for Advisors | SEI U.S.
https://www.seic.com/financial-advisors/our-insights/factor-investing-modern-blueprint-advisors
[3] [4] [5] [11] [15] [16] End of Summer Market Outlook — Mitchell & Mitchell Asset Management
https://www.mmassets.co.uk/insights/end-of-summer-market-outlook
[7] [8] [9] [10] [13] Portfolios — Mitchell & Mitchell Asset Management
https://www.mmassets.co.uk/portfolios
[12] [18] SEI Announces Strategic Partnership with Graphene | SEI U.S.
https://www.seic.com/about-sei/newsroom/sei-announces-strategic-partnership-graphene
[14] [19] Investment Philosophy — Mitchell & Mitchell Asset Management
