Factor Olympics 2025
And the winner is…
January 2026. Reading Time: 10 Minutes. Author: Nicolas Rabener.
SUMMARY
- Momentum was the best, and low volatility was the worst-performing factor
- Long-short factor investing generated strong excess returns
- Long-only, smart beta factor investing did not
INTRODUCTION
We present the performance of well-known factors for 2025 as well as over the last decade. We have started to include the growth factor, which, according to academic research, has generated negative long-term returns but is a widely followed investment style.
METHODOLOGY
Our factors are constructed from 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 are rebalanced monthly, and transactions incur a 10-basis-point cost. Stocks are selected on the following metrics:
- Value: A combination of price-to-earnings and price-to-book multiples
- Size: Market capitalization
- Momentum: Total return over the last 12 months
- Low volatility: Volatility over the last 12 months
- Profitability: Net income-over-equity
- Leverage: Debt-over-equity
- Growth: A combination of sales-per-share and earnings-per-share over the last three years
FACTOR OLYMPICS: EXCESS RETURNS
The table below ranks long-short factor performance over the past 10 years. Beyond showing performance, it illustrates the sharp year-to-year rotations in factor profitability, underscoring the value of diversifying across multiple factors.
Momentum was the top-performing factor in 2025, continuing its 2024 leadership amid strong demand for outperforming, high-growth stocks such as NVIDIA and Meta Platforms. Conversely, the low-volatility factor dropped from a top performer in 2024 to the worst performer in 2025.
An equal-weighted portfolio of all factors, excluding growth, which is not supported by academic research, would have returned -0.3% before management fees.
