High Beta leads in 1-year returns: A look at how 5 factor investing styles performed against Nifty 500

Factor investing has emerged as an approach that groups stocks based on specific characteristics such as momentum, quality, value, volatility, and sensitivity to market movements.

Rather than selecting stocks only by sector or market capitalisation, factor-based strategies seek to capture the performance associated with these characteristics.

Data from the PL Asset Management - PMS Monthly Newsletter shows that High Beta and Value were the strongest-performing factors over the past one year, significantly outperforming the broader Nifty 500 during the period.

The High Beta factor delivered a 21.66% return over 12 months, while Value gained 16.50%. Both were well ahead of the 2.38% return delivered by the Nifty 500 over the same period.

What are the 5 factor investing styles?

1. High Beta factor focuses on stocks that tend to move more sharply than the broader market.
2. Momentum strategies focus on stocks that have shown strong price performance over a recent period, based on the premise that existing price trends may persist for some time.
3. Quality factor focuses on companies with characteristics such as stable earnings, strong profitability, efficient operations and relatively sound balance sheets.
4. Value strategies look for stocks that appear relatively inexpensive compared with their fundamentals or valuation measures, such as earnings or book value.
5. Low-volatility strategies focus on stocks that have historically experienced smaller price fluctuations than the broader market.

Which factor performed best over one year?

Among the five factors, High Beta led with a 21.66% 1-year return, followed by Value at 16.50%.

The performance gap between the factors was substantial. High Beta's 21.66% return was about 19 percentage points higher than Momentum's 2.67% over the same period.

Value also maintained a sizeable lead over Momentum, with a return difference of nearly 14 percentage points.

How did the factors compare with Nifty 500?

Comparing the factor investing styles' returns with the Nifty 500 can provide investors with a clearer picture of whether a particular factor outperformed or lagged the broader market.

The data shows that all five factors outperformed the broader market in the last one year.

High Beta generated a 12-month excess return of 19.28% over the Nifty 500, which gave 2.38% returns during the period.

Value delivered an excess return of 14.12%. Low Volatility also outperformed the index, with an excess return of 4%.

Quality and Momentum were only marginally ahead of the Nifty 500, with excess returns of 0.97% and 0.29%, respectively.

High Beta and Value accounted for the strongest relative gains, while Momentum and Quality remained much closer to the broader market's performance.

What does this mean for investors?

The latest one-year performance highlights how differently factor strategies can behave during the same market period.

But factors that delivered higher absolute returns also generated higher excess returns over the Nifty 500 during the period.

High Beta's strong performance indicates that stocks with greater sensitivity to market movements benefited during the period. Value stocks also performed strongly, while Low Volatility delivered a more moderate outperformance.

Disclaimer: This is purely for educational/informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.