Factor Olympics Q3 2020

And the winner is…

October 2020. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Momentum & Quality are leading the performance scoreboard in Q1-3 2020
  • Value & Size generated negative returns, like in recent years, and Low Volatility ended a 10-year fantastic run
  • 2020 is shaping up as a year of highly dispersed factor returns


We present the performance of five well-known factors on an annual basis for the last 10 years. We only present factors where academic research supports the existence of positive excess returns across market cycles and asset classes. Strategies like Growth might be widely-followed investment styles, but lack academic support to be considered a factor and are therefore excluded (read Factor Olympics 1H 2020).


Our 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 capitalization 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, highlighting the benefits of diversified exposure (try Finominal’s Alpha Analyzer for a factor exposure analysis).

Diversification in factor investing is as essential as when buying stocks or bonds. However, diversification has not helped most classic multi-factor portfolios in 2020 as these tend to feature Value as a core component, which is having its worst drawdown since the tech bubble in 1999. Combining small-cap and cheap stocks, which has been a popular mutual fund category, has been hit especially hard. For example, the Russell 2000 Value Index has lost 21.5% in year-to-date 2020 compared to a gain of 5.5% for the S&P 500. Also quite notably, the Low Volatility