Long-Short vs Long-Only Factor Investing
These are comparable, right?
September 2026. Reading Time: 10 Minutes. Author: Nicolas Rabener.
SUMMARY
- Long-short and long-only factor returns vary significantly
- Differences are attributable to portfolio construction
- Matters more for some factors than others
INTRODUCTION
Academic research on equity factor performance would lead most investors to focus on the low volatility factor. Data from AQR’s data library shows that this factor, taking Betting-Against-Beta (BAB) as a proxy, has generated the highest returns since 1930: an excess return of 7.4% per annum, compared to 6.2% for momentum, 2.9% for value, and 2.2% for size.
In practice, the largest U.S. low volatility ETF, Invesco’s S&P 500 Low Volatility ETF (SPLV, $7bn in assets under management), generated a CAGR of 10.1% since its inception 15 years ago, compared to 14.1% for the S&P 500. Naturally, the academic argument is that low-risk stocks outperform on a risk-adjusted, not absolute, basis – yet SPLV’s Sharpe ratio was 0.59, compared to 0.73 for the S&P 500.
The largest U.S. multi-factor ETF, Goldman Sachs’ ActiveBeta U.S. Large Cap Equity ETF (GSLC, $15bn in assets under management), generated a CAGR of 14.2% and a Sharpe ratio of 0.69 since its inception 11 years ago, compared to 15.2% and 0.73 for the S&P 500 over the same period.
By contrast, AQR’s Equity Market Neutral Fund (QMNIX), which pursues long-short multi-factor investing as seen in academic research, is trading close to an all-time high.
As we noted before, a significant difference exists between academic long-short factor investing and its long-only implementation via smart beta funds, which most investors have actually allocated to (read Market-Neutral versus Smart Beta Factor Investing and Smart Beta: Broken by Design?). In this research article, we show these differences in the simplest possible way.
LONG-SHORT VS LONG-ONLY FACTOR INVESTING
We compare long-short factor investing, as studied in academic research, with its most popular pract
