2016 shows that factors are fickle

Last year demonstrated that diversification and discipline are required to put factors to good use.

Ben Johnson, CFA 17 January, 2017 | 6:00PM

Last year was marked by some dramatic changes in the factors that had dominant performance. Value made a comeback, while growth lagged. Small-cap stocks had been steadily gaining ground on large caps through much of the year and spiked higher in the weeks following the U.S. election. Low-volatility stocks, which had been outperforming the market at large as well as more-volatile names, were getting left in high-beta stocks' dust.

To be clear, this sort of reshuffling is a regular feature of not just factors, but sectors, asset classes -- you name it. The lessons to be learned from these perpetual games of leapfrog -- diversification and discipline -- are essential. Implementing those lessons is hard.

Reminder: Factors are cyclical

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About Author

Ben Johnson, CFA

Ben Johnson, CFA  Ben Johnson, CFA, is director of global ETF research for Morningstar and editor of Morningstar ETFInvestor, a monthly newsletter.

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