Both sides of factor investing
Chart • October 07 2026
Source: MSCI, based on data from Jan. 31, 2006 to May 30, 2026. Annual average returns of equal-weighted decile portfolios relative to the MSCI World Equal Weighted Index. Stocks are sorted monthly by factor exposure and assigned to deciles from lowest (1) to highest (10). Momentum, value and quality are composites of style factors from the MSCI Global Equity Factor Model. Past performance — whether actual, back-tested or simulated — is no indication or guarantee of future performance.
When it comes to factor investing, the highest-exposure stocks are only part of the story. Ranking developed-market stocks each month by momentum, value or quality exposure over more than 20 years shows that both ends of the distribution have contributed meaningfully to the return spread. For momentum and quality, hypothetical portfolios of the lowest-exposure stocks trailed the equal-weighted parent by roughly 5 and 4 percentage points annually, respectively.
That has implications for portfolio construction. A long-only index can overweight stocks with the highest factor exposure, but its ability to underweight those with the lowest exposure is limited by each stock’s benchmark weight — often just a few basis points. Constructions that permit short positions can act on both ends of the distribution. Learn more about how portfolio construction affects the ability to capture factor signals by reading our research.