Tracking factor performance can enlighten, yet it seems confusing in 2020. In a pandemic slowdown, a growth portfolio has done over 2.5 times better than the market portfolio. The momentum factor has done over 2 times better. Those two results may seem out of the ordinary. However, if you equally weighted your portfolio, returns would have underperformed the market portfolio by 10+ percent. A high beta portfolio underperformed by about the same amount as a low volatility factor portfolio, and the high dividend factor would be down over 30% relative to the market benchmark.
The current lesson; go big with large cap growth and momentum even in a recession. Of course, that is not the right lesson, but it is the lesson being reinforced with current returns. There will be momentum crashes and thee will be revisions of growth, but the timing and process of this market adjustment is not at all clear. For those who have diversified factor risks outside of growth and momentum to reduce market risk, you will have to wait for the benefits.
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