Factor Olympics 2018

And the Winner is…

January 2019. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • 2018 was negative for classic multi-factor portfolios
  • Low Volatility generated the best and Value the worst performance
  • Factor performance was homogenous across global markets


We present the performance of five well-known factors on an annual basis for the last 10 years, including 2018. We only present factors where academic research highlights positive excess returns across market cycles. Other factors like Growth might be widely-followed investment styles, but lack academic support and are therefore excluded (read Factor Olympics Q3 2018).


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 markets. Only stocks with a minimum market capitalisation of $1 billion are included. Portfolios rebalance monthly and transactions incur 10 basis points of costs.


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.

The year 2018 can be characterized as unusual as classic multi-factor portfolios were negative, which happens rarely. Most multi-factor smart beta ETFs or funds feature a combination of Value, Momentum, Quality, and Size. Out of those four factors, only Quality was positive.