Performance of equity style factors
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May 2024 · 5 min read

Style Factor performance and correlation


The use of style factors within a diversified investment portfolio is an efficient long-term strategy. Like all investing, there are positive periods and some negative periods but if investors trust factors for the long-term, then it has been proven to yield higher risk-adjusted returns.

Performance of Style Factors

Investors who stick with their style factors for long periods of time are harvesting the factor risk premium. By constantly being invested in factors, investors allow themselves the time to deal with any potential under performance whilst also continuing to benefit from the diversification that a set of low correlation strategies generates. Style factor investing is therefore not short-term trading and is instead part of an overall diversified, long-term portfolio.

Just like investing in the overall market, it is essential to hold these factor portfolios for long periods of time to ride out some factor underperformance that can occur and which could last for a few years. It is impossible to tell ahead of time which factors will do better in the future and we can only use the historical performance as a guide. It is also recommended to hold a blended combination of factors, which benefits from the diversification of various uncorrelated strategies.

Cumulative performance plots of some style factors compared to MSCI World Index
Cumulative performance plots of some style factors compared to MSCI World Index. Source: MSCI
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