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As this article mentions, Scientific Beta’s research finds that, since it has been possible to offset negative performance for some factors through the good performance of other factors, the issues relate more to the factor exposure implementation choices than to the factors themselves. For instance, in the last three years, the non-control of market beta exposure in a bull market context has prevented the vast majority of multi-factor indices on the market from benefitting fully from the important market risk premium. It is this poor market conditionality rather than the variations in factor returns that explains the disappointing performance of long-only factor offerings over this period.

In a long-only framework, index and strategy design rarely takes account of the non-factor risks induced by the factor exposure choices. Among these risks, the market beta risk or gap, which often corresponds to an unstable and defensive bias in the construction of factor strategies, is the one that has the most impact over the long term in terms of both the return and volatility of these strategies and it is the one that is controlled the least.

A full account of Scientific Beta’s research in this area can be found in the following publication: What Really Explains the Poor Performance of Factor Strategies over the Last 3 Years? September 2019, Scientific Beta White Paper

https://www.scientificbeta.com/download/file/poor-performance-of-factor-strategies