Factor Olympics 1H 2026
And the winner is…
July 2026. Reading Time: 10 Minutes. Author: Nicolas Rabener.
SUMMARY
- Momentum was the best, and size was the worst-performing factor
- Mixed returns for factor investing in 1H 2026
- Relatively consistent returns between long-only and long-short factors
INTRODUCTION
We present the performance of well-known global equity factors for the first half of 2026 and over the last decade. We also include the growth factor, which, according to academic research, has generated negative long-term returns but is widely followed as an investment style.
METHODOLOGY
Our global equity factors are constructed from long-short beta-neutral portfolios of the top and bottom 20% of stocks. The universe of stocks comprises those making up 99% of the total market capitalization. Portfolios are created at the country level with monthly rebalancing, then aggregated into global factor indices using weights derived from market capitalizations. Stocks are selected on the following metrics:
- Value: A combination of price-to-earnings and price-to-book multiples
- Size: Market capitalization
- Momentum: Total return over the last 12 months
- Low volatility: Volatility over the last 12 months
- Profitability: Net income-over-equity
- Leverage: Debt-over-equity
- Growth: A combination of sales-per-share and earnings-per-share growth over the last three years
FACTOR OLYMPICS: EXCESS RETURNS
The table below ranks long-short performance of global equity factors for the first half of 2026 and over the past 10 years. Beyond showing performance, it illustrates the sharp year-to-year rotations in factor profitability, underscoring the value of diversifying across multiple factors.
Momentum was the top-performing factor in the first half, while size ranked last. An equal-weighted portfolio of all factors, excluding growth, which is not supported by academic research, would have returned 1.7% before transaction, implementation, and management fees.
Source: Finominal
TRENDS IN FACTOR PERFORMANCE
We observe that most equity factors generated slightly negative returns in the first half of 2026 with very little volatility. The exceptions were the value and the low volatility factors, which performed well in the first quarter but lost all their gains in the second quarter. In contrast, momentum, which is dominated by AI-related stocks in the long portfolio, continued to build on its strong first-quarter performance.
Source: Finominal
FACTOR CORRELATIONS
The 12-month correlation analysis reveals several strong positive relationships, including value & low volatility and value & profitability. It also highlights notable negative correlations, such as value & momentum, and value & low leverage. Many of these relationships are structural rather than temporal – for example, cheap stocks often underperform and are frequently associated with high leverage.
Investors can naturally exploit advantageous correlations, e.g., buying cheap, low-volatility, but highly profitable companies, seems like a sensible investing strategy.
Source: Finominal
PERFORMANCE OF LONG-SHORT MULTI-FACTOR PRODUCTS
Only a handful of liquid alternative mutual funds and ETFs offer pure long-short factor exposure, as seen in academic research. There have been liquidations, such as Simplify’s Market Neutral Equity Long/Short ETF (EQLS) in 2025, but also new launches, such as Fidelity’s Equity Market Neutral Fund (FEMNX) and Federated Hermes MDT’s Market Neutral ETF (MKTN) in 2024 and 2025, respectively.
The best-performing fund of recent years, AQR’s Equity Market Neutral Fund (QMNIX), performed poorly, in contrast to AQR’s cross-asset style premia fund (QSPRX), which indicates that factor investing has been more profitable in fixed income, commodities, and currencies than in equities. Simplify’s Multi-QIS Alternative ETF (QIS) continued its exceptionally poor performance and will likely be liquidated soon.
Source: Finominal
LONG-ONLY EXCESS RETURNS
Although investors should allocate to factors constructed as long-short portfolios, given that these offer high diversification benefits, most invest via long-only smart beta ETFs (read Smart Beta vs Alpha + Beta). Given this, we compute the excess returns for the long-only portfolios of the equity factors (read Market-Neutral versus Smart Beta Factor Investing).
Comparing these to the long-short factor returns broadly highlights the same picture: performance was muted overall, except for the strongly positive returns of momentum and the negative ones for the size and low volatility factors. The largest discrepancy is in the low-leverage factor: betting on low-leverage stocks was profitable, but simultaneously shorting high-leverage stocks was unprofitable.
Source: Finominal
FURTHER THOUGHTS
Financial markets are fascinating because they continually change and require ongoing research. Often, they are highly counterintuitive. For example, the value and profitability factors are currently highly correlated. However, this is challenging to explain from a long-only perspective, as cheap companies do not tend to be highly profitable – quite the opposite, in fact. What explains this anomaly? (read Value vs Quality: More Correlated than Ever? II).
Market-Neutral versus Smart Beta Factor Investing
Factor Optimization via ETFs
Smart Beta ETF vs Customized Factor Portfolios
Factor Exposure Analysis 114: Factor Offsetting
Improving Smart Beta Attribution Analysis II
Quality in Small versus Large-Cap Stocks
The Illusion of the Small-Cap Premium
Shorting Lousy Stocks = Lousy Returns?
Higher Volatility, Higher Alpha?
Outperformance Ain’t Alpha
Improving the Odds of Value Investing
The Value Factor’s Pain: Are Intangibles to Blame?
Smart Beta vs Alpha + Beta
How Painful Can Factor Investing Get?
GARP Investing: Golden or Garbage? II
Are Low-Risk Stocks Really Low-Risk?
ABOUT THE AUTHOR
Nicolas Rabener is the CEO & Founder of Finominal, which empowers professional investors with data, technology, and research insights to improve their investment outcomes. Previously he created Jackdaw Capital, an award-winning quantitative hedge fund. Before that Nicolas worked at GIC and 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 (Ironman & 100km Ultramarathon).
Connect with me on LinkedIn or X.
