Factor investing is an investment approach that targets specific characteristics or 'factors' that drive different stock returns. These factors include volatility, momentum, company size, value metrics, and other quantitative characteristics that have been shown to generate superior long-term investment returns.

The strategy involves systematically tilting a portfolio toward factors that have historically provided excess returns while managing risk through diversification across multiple factors. This approach has evolved from simple market and company-specific analysis to sophisticated multi-factor models.

Factor investing represents a middle ground between passive indexing and active management, offering the potential for enhanced returns through systematic exposure to risk premiums embedded in market factors.