And the Winner is…

April 2018. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • 2018 started negative for the majority of factors
  • Momentum, Quality and Growth showed the strongest performance
  • Low Volatility, Dividend Yield and Value generated negative returns


We present the performance of seven well-known factors on an annual basis for the last 10 years and the first quarter 2018. It is worth mentioning that not all factors have strong academic support, e.g. Growth lacks a long-term track record of positive excess returns; however, is still a widely-followed investment style.


The factors are created by constructing long-short beta-neutral portfolios of the top and bottom 10% of stocks in the US, Europe and Japan and 20% in smaller markets. Only stocks with a minimum market capitalisation of $1 billion are included. Portfolios rebalance monthly and transactions incur 10 basis points of costs. Please see our Factor Guide for the factor definitions.


The table below shows the factor performance for the last 10 years ranked top to bottom. The global series is comprised of all developed markets in Asia, Europe and the US. Aside from displaying the factor performance the analysis highlights the significant factor rotation in terms of profitability from one year to the next.

The first quarter of 2018 shows a continuation of 2017, i.e. risk-off factors like Quality and Growth generated positive while risk-on factors like Size and Value generated negative returns. Momentum, which has a large bias towards the Technology sector in the long portfolio, is leading factor performance. It is worth highlighting that negative returns for the multi-factor portfolio, which allocates equally across the seven factors, are relatively rare.

Factor Olympics (Long-Short) - Global

Source: FactorResearch


The table above reflects the global factor performance and it is interesting to analyse how homogeneous the performance is across regions. The global performance is significantly weighted towards the US, so it is not surprising that factor performance in the US in Q1 2018 is very similar to the global returns. The Low Volatility factor exhibits interest rate-sensitivity and has been negatively impacted by rising interest rates in the US.

Factor Performance 2018 Q1 (Long Short) - US

Source: FactorResearch


The factor performance in Europe is similar to the US, but somewhat less extreme in either direction. A key discrepancy is the performance of the Low Volatility factor, which is negative in the US while positive in Europe. Perhaps this reflects investors expectations of interest rates rising faster in the US compared to Europe.

Factor Performance 2018 Q1 (Long Short) - Europe

Source: FactorResearch


Factor performance in Japan is comparable to the US and Europe. The largest discrepancy is the Dividend Yield factor, which was positive in Japan while negative in the two other regions. The factor generated a much more attractive performance over the last two decades in Japan than on a global basis, which we highlighted in our report Resist the Siren Call of High Dividends.

Factor Performance 2018 Q1 (Long Short) - Japan

Source: FactorResearch


The chart below shows the factor performance in Q1 2018 and we can identify one cluster of correlated factors, which comprises Growth, Quality and Momentum. The Technology sector currently contributes a significant amount of stocks to these three factors as Tech companies have shown strong growth in sales and earnings (Growth) and also feature high profitability and low levels of debt (Quality), which has led these stocks to outperform others (Momentum).

Factor Performance Q1 2018 (Long Short) Global

Source: FactorResearch

The correlation matrix below highlights the global one-year factor correlations. We can observe strong relationships between Momentum and Growth as well as Quality and Growth, which might be considered a portfolio risk. Investor looking to diversify that risk can consider the Value factor, which shows negative correlations to all three.

Global Factor Correlations (Long-Short)- Last 12 Months

Source: FactorResearch


The factor performance in Q1 2018 showed consistent trends and has been essentially a continuation of 2017. Value has generated the worst factor performance in the first quarter after the same position for the entire year of 2017 and it will be interesting to see if a factor rotation will set in, or if factor momentum prevails.


Nicolas Rabener is the Managing Director of FactorResearch, which provides quantitative solutions for factor investing. Previously he founded Jackdaw Capital, an award-winning quantitative investment manager focused on equity market neutral strategies. Before that Nicolas worked at GIC (Government of Singapore Investment Corporation) in London focused on real estate investments across the capital structure. He started his career working in investment banking at Citigroup in London and New York. Nicolas holds a Master of Finance from HHL Leipzig Graduate School of Management, is a CAIA charter holder, and enjoys endurance sports (100km Ultramarathon, Mont Blanc, Mount Kilimanjaro).

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