Factor Olympics 2017
And the winner is…
January 2018. Reading Time: 10 Minutes. Author: Nicolas Rabener.
SUMMARY
- 2017 was a positive year for most factors
- Quality, Growth and Momentum showed the strongest performance
- Value, Dividend Yield and Size generated negative returns
INTRODUCTION
We present the performance of seven well-known factors on an annual basis for the last 10 years and the full-year 2017. It is worth mentioning that not all factors have strong academic support, e.g. Growth lacks a long-term track record of positive excess returns; however, is still a widely-followed investment style.
METHODOLOGY
The factors are created by constructing long-short beta-neutral portfolios of the top and bottom 10% of stocks in the US, Europe and Japan and 20% in smaller stock markets. Portfolios rebalance monthly and include 10bps of transaction costs.
FACTOR OLYMPICS (LONG / SHORT): GLOBAL
The table below shows the 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, e.g. last year’s winners Dividend Yield, Value and Size, are this year’s losers. Factor investing has been at its all-time high in 2017 in terms of popularity according to Google Trends, but factor selection and factor timing are challenging subjects (read Factor Olympics: Q3 2017).
