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Factor Performance vs Portfolio Concentration

The more concentrated, the higher the returns, right?

Nicolas Rabener
10 min read
8 Dec 2025

SUMMARY

  • More concentrated portfolios generated higher excess returns for value & momentum stocks
  • In contrast, higher diversification was beneficial for other factors like quality and growth
  • It is difficult to explain this, but has consequences for multi-factor portfolio construction

INTRODUCTION

Factor investing appears to be the only strategy for outperforming the market over the medium to long term. Intuitively, the more concentrated a portfolio, the greater the potential for outperformance. This idea has been reflected in recent years by the launch of several smart beta ETFs with highly concentrated holdings – for example, the John Hancock Disciplined Value Select ETF (JDVL) holds just 40 stocks.

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