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Top vs Bottom-Ranked Factor Portfolios

Do you need to own the highest-ranked stocks?

Nicolas Rabener
10 min read
19 May 2025

SUMMARY

  • Intuitively, factor exposures should be maximized when seeking outperformance
  • While this is true for momentum, it does not apply to the value or size factors
  • Investors do not constantly need to rebalance and seek the stocks with the highest factor exposures

INTRODUCTION

Factor investing remains one of the few reliable strategies for generating outperformance over the medium to long term. Yet, constructing a factor-driven portfolio is far from straightforward. Investors must navigate a series of complex decisions, including factor selection, combination methodology, stock weighting, tradable universe definition, rebalancing frequency, and portfolio concentration.

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