Which factors have put together strong performance in 2026?

Factors commonly accessible through ETFs today are momentum, low volatility, quality, dividend achiever, and buyback strategies. All these factors are designed to pinpoint a certain investment theme within the marketplace and systematically allocate to that theme. For instance, the “low volatility” factor is represented by the Invesco S&P 500 Low Volatility ETF (SPLV), a fund that seeks exposure to the 100 stocks with the lowest volatility in the S&P 500. Most of the factors examined offer better performance than the benchmark, the SPDR S&P 500 ETF (SPY), through certain periods. However, no single factor ETF has been the best performer every year, or even most of the years...nor has any single factor ETF been the worst performer every year or most of the years.

Factor Return Observations (US Equities)

• After ending 2025 in the middle of the pack, growth and momentum have reasserted their leadership, occupying the top two positions through most of 2026. This pattern is reminiscent of 2024, when both factors led market performance and drove returns across equity markets.
• Buybacks have experienced a notable reversal in leadership. After ending 2025 in first place, the factor has lagged significantly, spending most of the year near the bottom of the rankings.
• Despite leading the core market factors during Q1, dividend payers moderated and settled back into a mid-ranked position. While the factor has lost some strength, its performance remains a notable departure from the past two years, during which it occupied the lowest tier of the rankings.
• Factor dispersion has remained elevated this year. The performance spread between the highest- and lowest-performing factor groups currently stands at 26% year-to-date, over 3 percentage points above its historical average.

It is About Time in the Factor, Not Trying to Time the Factor

Our goal with the research above is to illustrate the range of available factors and the necessity of discipline in applying these factors over time. We want to promote “good behavior,” as it relates to any investment process or product. This is perhaps the most important observation from the data above; we illustrated the outcomes generated by a few common behaviors using the same investment universe, and the outcomes vary dramatically.

There are the “buy and hold” outcomes, which show buyback and growth as the best performers throughout the entire timeframe, but we also know inherently what comes with a buy and hold commitment to only one group. The first three months of 2026 showcased this issue most recently as these factors struggled through Q1, and Q3 fared better for buyback (+1% in Q3) than growth (-8.5% in Q3). While stellar Q2 2026 performance has helped growth on a year-to-date basis, other examples of rough patches for the factor include 2022 and 2000-2002. While buyback has turned around over the last decade, there was a five-year stretch from 2014-2018 where the factor didn’t crack the top half of performance rankings. This can be tough to stomach as other areas continue to excel.

Another approach is to equal weight all seven factors in a portfolio and rebalance that portfolio once a year. This gives you a baseline that notably underperforms the benchmarks over the last 19 years. We also looked at the hypothetical behavior of buying the best-performing factor from the previous year and holding that factor for the entire next calendar year; we called this “Return Chasing,” and while no portfolio manager markets themselves this way exactly, it is an emotional bias that creeps into many investors’ psyches.

This has only “worked” in back-to-back full calendar years from 2012-2013, so return chasing hasn’t worked all that well over our back test. On a cumulative basis, return chasing has massively underperformed not only the other “strategies,” but also buying-and-holding almost any factor. The factors themselves are not the problem, as many create substantial alpha relative to the market. But bad behavior can create bad returns out of good products, and constantly chasing last year’s best-performing factor often exemplifies that reality.

The opposite of return chasing is the contrarian approach, which buys the worst-performing factor from the previous year and holds it for the subsequent calendar year. The “Contrarian Switching” portfolio illustrates what is missed when an investor dumps a factor for having a bad year. A good stock can become a bad stock and remain such for a long time, but a good factor is less likely to stay perennially out of favor– this is evidenced by the outperformance of the “Contrarian Switching” strategy, which has beaten the "average" portfolio of equally-weighted factors despite a poor stretch the last few years.

International Equity Smart Beta

These strategies can also be applied to factor representatives from international equities, which, as we can see below, demonstrate similar tendencies to their domestic counterparts. Note that the representatives below are only for developed market equities, as there has not been enough historical representation of factor exposure in emerging markets for a robust examination.

Factor Return Observations (International Equities):

• After a tough Q3, momentum fell behind value as the top-performing factor in 2026 but continues to outpace the benchmark on a year-to-date basis, reaffirming its market leadership role. Value has also ranked among the top three factors in four out of the last five years.
• Despite finishing as the top-performing factor in 2025, buybacks have struggled to maintain their strength in 2026. The factor has gained over 6% on a year-to-date basis and currently ranks in the middle of the pack among the factors, but this is a far cry from the nearly 40% gain seen in 2025.
• While international equites pulled back or consolidated during Q3, only one factor – dividend – saw its year-to-date return move into negative territory.
• As with the U.S. equity quilt shown above, contrarian, return chasing, and equally -weighted factor portfolios were created and experienced similar trends as to those discussed above. Intriguingly, the dispersion between the top and bottom performing factor sits at 13%, below the average dispersion.