Does strategic allocation to well-know factors really work? In this study, we provide new out-of-sample evidence that factors add value.
This paper1 takes another look at the recommendation of Blitz  to allocate strategically to the value, momentum, and low volatility factor premiums in the equity market. Five years of fresh data show that such a factor investing strategy continued to deliver out-of-sample.
The potential added value of the two new factors in the Fama-French five-factor model, operating profitability and investment, is investigated and found to depend critically on the performance metric that is considered most important. The paper also reviews the role of small-cap stocks, factor timing, long-only versus long-short portfolio construction, international evidence, and factor investing beyond equities.
1Blitz, D. C., 2015, ‘Factor investing revisited’, The Journal of Index Investing.
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