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Are Factor Investors Getting Paid to Take on Industry Risk? (Part 2)

Industry tilts appear to pay off for momentum but are not integral to the success of value and low-volatility strategies

In the Part 1 of this article, we introduced the research design of our study. Here, let’s look at the results.

Results
Exhibit 1 shows the annualized performance of the stock- and industry-level versions of each factor. While the stock-level value factor earned a respectable 2.36% annualized return over the 50-year sample period, the industry-level value factor posted a small negative return. This suggests that industry tilts did not contribute significantly to the performance of the broad value strategy. Despite the gap between the two value factor returns, they were highly correlated. (The correlation coefficient was 0.78.)

170504 Factor 01(en)

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About Author

Alex Bryan

Alex Bryan  Alex Bryan, CFA is the Director of Passive Fund Research with Morningstar.

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