Factor Olympics Q3 2025
And the winner is…
October 2025. Reading Time: 10 Minutes. Author: Nicolas Rabener.
SUMMARY
- The momentum factor increased its leadership position
- The low volatility factor moved from second-best to worst performance
- Market-neutral factor returns continue to be more attractive than long-only excess returns
INTRODUCTION
We present the performance of well-known factors year-to-date as well as over the last decade. We have started to include the growth factor, which, according to academic research, has generated negative returns over the long term, but is a widely followed investment style.
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 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.
In the first half of 2025, only the low volatility and momentum factors delivered positive returns. By the third quarter, however, low volatility shifted from the second-strongest performer to the weakest. An equal-weighted portfolio of all factors – excluding growth – would have returned 0.1% before management fees.
