Factor investing in Brazil: Diversifying across factor tilts and allocation strategies

We employ a methodology to construct multi-beta multi-strategy (MBMS) indices for the Bra-zilian equity market that can diversify the exposure to multiple rewarded risk factors and unre-warded strategy-specific risks. We do so by considering as many as six risk factors, and five allocation strategies. Empirical results show that the MBMS indices so obtained outperform the cap-weighted benchmark index in both absolute and risk-adjusted terms. We also show that the same indices have a higher probability of outperforming the market than the individual multi-strategy factor indices, and that such outperformance is persistent over time.