Multi-factor strategies deliver yet again

Multi-factor strategies have been generating strong contributions to performance since 2021. Investors who choose advanced strategies that mix several factors together are at an advantage.

Author: Elias Lipp, Senior Product Specialist Equities & Themes

The mix of various factors can increase investment opportunities and reduce the risk of loss.

During the challenges of 2019 and 2020, most multi-factor strategies delivered positive performance figures in absolute terms, but often lagged behind the benchmark (MSCI World). Since 2021, however, the tables have turned (see chart below). The different styles are back to delivering positive results.

Relative performance of the "Value", "Quality" and "Momentum" styles compared to MSCI World since 2021 (source: Zürcher Kantonalbank, Bloomberg)

The phenomenon of short-term under­performance is common, because the focus on short-term performance causes inflows and out­flows that affect relative valuations and future returns. To put it another way, any strategy that out­performs in the long term will have phases of short-term under­performance. Multi-factor strategies in particular therefore require perseverance and discipline.

The "Magnificent Seven" dominate in 2023

The MSCI World TR net, which is dominated by US companies, has gained by slightly more than six percent in USD since January (as of 27/10/23). However, a closer look shows that this performance is mainly down to the so-called "Magnificent Seven" (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms and Tesla). Since the beginning of the year, these seven companies have all gained by more than 30 percent, consequently gaining ever larger market weightings. They now make up around 20 percent of the MSCI World. For comparison: at the same time, the equal-weighted index (MSCI World Equal Weighted Index TR net) was virtually flat (-0.98 percent in USD).

An underweight in the "Magnificent Seven" in the portfolio resulted in an underperformance relative to the benchmark. Our global multi-factor strategy with its underlying styles was unable to avoid this (see chart below).

Year-to-date performance of the Value, Quality and Momentum styles relative to MSCI World TR net. (Source: Zürcher Kantonalbank, Bloomberg)

The "Quality" style showed the best relative performance to date. Somewhat surprisingly, the "Value" style was also negative, despite the higher interest rate environment. The "Momentum" style expressed the greatest difficulties due to the fact that this year, the market struggled to find a clear direction and was therefore very difficult to calculate. It was only the increased geopolitical tensions around the world that recently triggered stronger corrections. The style was troubled by these fluctuating tendencies until the end of July 2023.

Significantly better performance outside the USA in 2023

The picture is different in regions outside North America. The mix of the three "Value", "Quality" and "Momentum" styles recorded a positive performance relative to the respective benchmark in all regions (emerging countries, Europe, Asia and Japan) (see chart below).

Relative year-to-date performance of the multi-factor model in four regions. (Source: Zürcher Kantonalbank, Bloomberg)

This is all the more pleasing, as the annual performance of the four regions so far varies greatly (as of 27/10/23). The Japan region (MSCI Japan TR net) had very strong growth of 22 percent in local currency terms. Europe (MSCI EMU TR net) also posted a positive performance since the turn of the year (+5.29%, TR net in EUR). At the same time, the Asia Pacific ex Japan (-3.80%, MSCI AC Asia Pacific ex Japan TR net in USD) and Emerging Markets (-1.65%, MSCI Emerging Markets TR net in USD) regions suffered losses. The result shows that our multi-factor model broadly works.

Multi-factor strategies benefit from data flood

The financial markets continue to demand more from investors. The competence to extract price-relevant information from the ever-growing flood of data is also decisive for performance above the benchmark. Such information is essential to further develop factors of quantitative strategies. Against this background, Zürcher Kantonalbank’s asset management has recently made adjustments to its styles and, for example, increased the weighting of companies’ expenditure on research and development.


Multi-factor models can have advantages, especially in times of great uncertainty, as we are currently realising. This is because investment decisions are made purely rationally, free of any emotions. Investing in strategies that mix different factors can also increase investment opportunities and reduce risk of loss.