Factor Olympics 1H 2025
And the winner is…
July 2025. Reading Time: 10 Minutes. Author: Nicolas Rabener.
SUMMARY
- Only momentum generated meaningful excess returns year-to-date
- Value and small-cap stocks underperformed
- Market-neutral factor returns continue to be more attractive than long-only returns
INTRODUCTION
We present the performance of five well-known factors on an annual basis for the last 10 years. Specifically, we only present factors where academic research supports the existence of positive excess returns across market cycles and asset classes.
METHODOLOGY
Our factors are created by constructing long-short beta-neutral portfolios of the top and bottom 30% of stocks. Only stocks with a minimum market capitalization of $1 billion are included. Portfolios rebalance monthly and transactions incur 10 basis points of costs.
FACTOR OLYMPICS: GLOBAL EXCESS RETURNS
The table below shows the long-short factor performance for the last 10 years ranked top to bottom. The global series is comprised of all developed markets in Asia, Europe, and the US. Aside from displaying the factor performance, the analysis highlights the significant factor rotation in terms of profitability from one year to the next, highlighting the benefits of diversified exposure.
The low volatility and momentum factors have extended their winning streak from last year, but the low volatility factor lost almost all its gains in the second quarter of 2025. Only momentum has generated meaningful positive excess returns, while small caps have underperformed significantly.
A theoretical portfolio providing equal-weighted exposure to all five factors would have generated 0.2% before management fees.
