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Portfolio perspectives | Article - 2 Min

Equity factor investing: Historical perspective of recent performance

Many quantitative managers of equities have recently reported underperformance of their strategies using a multi-factor approach involving the value, quality, low risk and momentum factor styles. It is not the first time this has happened. What is different now is that poor performance can be attributed mainly to value factors. What is more, long-only portfolios have suffered additionally.

In this paper, we address a number of questions. They include

  • Is equity factor investing still relevant? We firmly believe so.
  • Did all factors fail recently? Quality and momentum worked well.
  • Was it helpful to neutralise beta, macro-sectors and target constant risk? Yes, such choices have been extremely helpful over time!
  • Was it helpful to diversify the number of factors in each factor style? Yes! This significantly increased the risk-adjusted returns.

What should we expect now?

The paper argues that some of the recent trends seem largely overstretched. The valuation gap between cheap and expensive stocks is historically high. The same goes for the level of concentration in the market capitalisation benchmarks. Will these trends continue? We think multi-factor strategies are now likely to start coming back as factor performances re-normalise, even if this may take time.

Read Equity factor investing: Historical perspective of recent performance

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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