Factor / Smart Beta Investing

I have done this but using ETFs rather than stocks - mostly outside of FT - I am in the process of moving off FT, I have a significantly large FIRE portfolio and haven’t got time to build and manage/rebalance this for a period of 40 years for which I am investing for.

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Hi Pat,

I don’t disagree that there is “nothing wrong with a punt” but if you’re a completely new investor and you arrive on message boards and twitter you will see lots of arguments for stocks. If you’re business and investing naive you have no way of evaluating the arguments put forward and so new investors tend to follow the most charasmatic commentators. The risk is new investors end up with a portfolio of punts and probably don’t even realise.

The problem then is when the stocks perform the investor says …

“I’m a really good investor”

but when it goes bad (as if often does with story stocks) as a stock misses it’s earnings targets the investor is sat waiting for the commentator to post their opinion but they are often gone without trace. The investor then blames the commentator. (Isn’t the ego a fragile thing?)

If this keeps happening the new investor will exit the investing scene never to return which is a huge missed opportunity for them

I’m trying to encourage individuals to take control of their investing process by using a disciplined approach. Once an investor has a disciplined approach they can start to freestyle (if they wish)

I don’t think I’m alllowed to link to my YT channel here (please correct me if I’m wrong) but I produced a video called “How to pick Winning Stocks”. In that I hope to convey that you might well win big from time to time on a “story stock” but if you bought a basket of these stocks they underperform.

For me commission free brokers such as Freedtrade provide a game changing opportunity for cash poor investors to enter the markets BUT they need to be helped to be successful.

For example I have a few videos where I show how to construct passive (yearly, half-yealy or annually rebalanced) UK based portfolios of 20 stocks using factor based approaches on the Freetrade and Freetrade Plus platforms. I’m endeavouring to publish the results of this process transparently and for free. The portfolios constructed so far focus on:

  1. SuperStocks - Blended Quality, Value & Momentum (Stockopedia’s StockRank)
  2. HighFlyers - Blended Quality & Momemtum (Stockopedia’s QM Rank)
  3. Turnarounds - Blended Value & Momentum (Stockopedia’sVM Rank)

As I develop the channel further I’ll look expand into other markets (and the styles that work best in each at that time) and seek to introduce a more active process that blends TA.

Does that help to clarify?

Warm regards

Hi njrajn123,

It’s great that you are taking control of your finances at such an early age. It will serve you well later in life.

As with any approach a blend is good so I’m in no way suggesting any individual should place all their eggs in one basket and having someone such a financial professional managing the ETF’s you invest is of course prudent.

However what if you would only have to buy 20 stocks once a year and rebalance annually?
Is that too much of your time?

In two videos I have produced I have completed the screening, allocation and purchasing of 20 stocks for UK factor based portfolios using Freetrade in under 40 minutes.

What sort of performance would you expect from such portfolios?

I’m very happy for individuals to observe the process from a distance and make their own decisions but I’m sure this passive approach requiring no business or investing knowledge will be attractive for some.

My argument is …

  1. You don’t need to be business genius to be a successsful investor
  2. You don’t need to spend loads of time in front of your pc to be a successful investor
  3. You can build market beating factor based portfolios
  4. With the advent of commission free brokers you no longer need a huge amount of cash to justify building a 20 stock portfolio that you rebalance quarterly

Best of luck

Thanks Phil.

To save everyone some legwork: here are a couple of videos from GrowYourDough on Youtube that cover a DIY approach to factor investing (by screening stocks and then buying that basket)

Screening stocks based on factors:

Buying a portfolio:

I like this DIY approach and I think the videos are helpful, however I do still have some concerns with this approach vs using factor ETFs

Screening costs
The screening process takes a bit of time but also money. If you want to use Stockopedia to screen you are looking at £200pa which even on a fairly large portfolio of £100k is 20bps - not far off what you’d pay for a global ETF.

Trading costs
If this strategy involves a lot of buying & selling for rebalancing (as the top 20 change) depending on the liquidity of the stocks you pick you might end up losing quite a bit to the spread (even if there are no transaction costs) that could eat into returns.

20 stocks is quite a small pool, I’d rather have better diversification than that but the key issue is being constrained to to the UK (I think FX costs prevents anything else being practical on Freetrade). When it comes global diversification with poor factor control vs UK only with full customisation, I’d pick global every time - the UK is just too small part of the market.

Really this just makes me hope we get some good multifactor ETFs in the UK and on Freetrade, but it seems we are a bit behind on that.


Hi Cameron,

Many thanks for linking my videos.
It’s clear that there will be some very sophisticated investors here and on other forums and I’d suggest that this sort of passive factor based approach might not be for them.

However it’s clear more and more novices are entering the markets and whilst it might well be better for them to utilise ETF’s to spread thier funds across diverse markets some still chose to buy individual stocks.

In producing the videos what I’m hoping to do is help the latter group develop a structured strategy that doesn’t require the external input of anonymous ‘experts’ on social media.

The costs of the screening tool (which ever you use) are a challenge BUT if the latter group does wander into the market buying off the advice of others I’d suggest that the fee for the Stockopedia service will in my experience pay back in increased portfolio returns PLUS naive investors gain access to tools, education and a knowledgeable community. One subscriber described it as a fee they were willing to pay to educate themselve about investing.

Thanks again and very happy to receive any feedback.


Definitely understand where you are coming from.
Unfortunately we are in a world where 75% odd of CFD investors lose money, and yet everyone is investing in CFDs etc.
A defined and pragmatic process would be welcomed.

There are a lot of YouTube videos with that title by the way. How can I find out what you specifcally are talking about?

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Hi Pat,

My channel is linked in my bio

Hope that helps

Well, I am in my early 40s, so not exactly young, but this is a setup and forget portfolio. The only rebalancing will be around FI.

20 stock portfolio is too concentrated for my liking and while it may be far less volatile than individual stocks, it does bring up idiosyncratic risks, which you might be OK if you are targeting higher returns. I am only targeting between 1-2% alpha over VWRP, I plan to be close to 80% allocated to equities during retirement and ensure I don’t take excess risk on the downside (than I want to).

I had a quick look at your portfolio, are you suggesting an UK only portfolio? UK is 4% of global index, and such approach brings in major country risk (there is currency risk aspect on the flip side too which is somewhat related).

I did not see the factor regression shown for the portfolio.

Anyway - the low cost ETF approach works best for me as I do not plan on doing any trading at all until I start the drawdown.

Young at heart then maybe :wink:

As I said in reply to another poster. There are sophisticated investors (such as yourself) and there are newbies wandering into buying individual shares on the commentary of message boards and Twitter.

You have a clear understanfing of what you want, which is great but many don’t.

I’m producing content that describes how to use factor based approaches in different regions and at present I’ve started with the UK. As you’ve describe investing in just one country brings the risks that you have identified but for better or for worse there are individuals out there that do just buy stocks from their own country based on the opinion of others. I think an approach which is rigourous is better than what they are currently doing BUT might not be as safe as your approach.

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I wouldn’t call myself a sophisticated investor, just a patient (lazy) and long term one.

All the best for your channel.


There are also a lot of idiots who watch/read Reddit/You-tube (not a dig at the you-tube account above, honest) and think it is simple to become rich so invest badly as well :+1: I do wonder how people actually lose money over time but it seems they do but it would be interesting to see how these people got into investing.

A lot of these people buy what they like or is popular when the stock actually is peaking :man_facepalming: Not the cleverest way of investing.

Well it is not entirely their fault. I’d call it a a cone of investors. Few people have extra money to invest because nobody teaches personal finance to begin with, of those who have money don’t know what is best for them, some are risk averse to thought of losing ‘any’ money so completely shy away from investing (don’t understand risk of not investing for large part of their careers). Now that mostly leaves us with (mostly) young people who can’t differentiate between good and bad risk, good and bad diversification etc. who are understandably in a hurry to get rich, and will out try the next hot trend and then get scarred for life - mostly to tell the tale to others that stock market or ‘investing’ is just a casino.

Long term investing is boring, very few in the industry - the channels, websites, platforms like this, can’t make money out of a boring marathon - so everything has to be a quick turnaround sprint - problem is that for a small number of times it works extremely well.

This is very much me. I got caught out in the dotcom crash very early in my career. I first started investing a year earlier and lost almost everything I’d saved in that year. This wasn’t money from just saving left over money, it’s was making a conscious decision to sacrifice doing things I wanted to save for the future. After the crash, the lesson I learned from that was not to touch the stock markets, and so later on in my earning career when I had plenty of spare money, it was invested in bank accounts earning a couple of percent with zero risk. It’s only now I’m thinking about how long I have to stay working and thinking about how to retire early that I can look back and see how much opportunity I missed in that time.

Yes, most new investors come into market at the wrong time (that is exactly how the media work - it gets hyped when it is hottest), they are then scared as I said.

Given we had two cycles into one now, I am hoping this time it is going to be different. What is not going to be different though is lack of understanding of risk - most small investors would do well just by buying just the VWRL for their equity part of their portfolio on a risk adjusted basis.