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Performance Of Factor Tilts: November 2018

Ploutos profile picture


  • In an ongoing series, I have illustrated for Seeking Alpha readers how five unique factor tilts have generated market-beating performance historically.
  • I hope a display of these returns and a brief discussion about why these factor tilts deviated from the broader market can help readers with their asset allocation decisions.
  • Low volatility and dividend growth continued their recent outperformance in November.
  • Size and value continued to lag in the broad-based market sell-off.
  • Hopefully, with this series, we can all get smarter about smart beta.

In a series of articles, I have tried my best to show Seeking Alpha readers that these simple strategies outperform over the longest datasets we have available in U.S. finance. With this monthly update, I try and provide insight into the short-term drivers of relative performance.

  • Size: In Smart Beta Over Generations: Size, I showed that smaller capitalization firms have delivered higher returns since 1926, and that a qualitative sort like low volatility has boosted risk-adjusted returns over recent decades.
  • Value: In The Value of Value, I showed that a value sort based on book-to-market has also delivered meaningful outperformance since 1926.
  • Low Volatility: I offered an expansive series on Low Volatility beginning in July 2015, showing that it has outperformed across geographies, asset classes, and time horizons. In Smart Beta Over Generations: Low Volatility, I showed that across size cohorts, the lowest volatility quintile has produced higher absolute and risk-adjusted returns versus the riskiest two quintiles since 1963.
  • Dividend Growth: In The Updated Chart All Dividend Investors Should See, I showed that dividend-paying stocks have outperformed since 1926, but that the stocks with the highest dividend yields tend to underperform companies that pay more stable dividends.
  • Equal-Weighting: In Very Long-Run Excess Returns From Equal-Weighting, I show the long-run benefits of an equal-weighted strategy versus traditional capitalization-weighting. Equal-weighting benefits from both an smaller average capitalization level (size) and contrarian rebalancing (value).

This series uses different datasets that are more readily investable and have exchange-traded funds that replicate the benchmarks. The drawback is that these benchmarks date to 1989 at the earliest and many of the replicating funds have been around for less than a decade. As you can see from these indices though, the outperformance of these strategies versus the market benchmark is demonstrable over the past 10 and 20 years.

This article was written by

Ploutos profile picture
Institutional investment manager authoring on a variety of topics that pique my interest, and could further discourse in this online community. I hold an MBA from the University of Chicago, and have earned the CFA designation. My articles may contain statements and projections that are forward-looking in nature, and therefore inherently subject to numerous risks, uncertainties and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance, and investment horizon.

Analyst’s Disclosure: I am/we are long IJR, PRV, SPLV, USMV, SDY, NOBL, RSP, MTUM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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