Multi-Factor Portfolios

Combining factors can smooth returns, because different factors tend to shine at different times. Here is how multi-factor portfolios are built, why value and momentum pair well and what to watch out for.

Why combine factors

No single factor works all the time, and factors often take turns. Value and momentum, for example, have tended to move in opposite directions: cheap stocks are often recent losers, while momentum stocks are often expensive. Holding both can smooth the ride compared with owning either alone.

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