That raises an obvious question: if one factor is good, are two factors better? The evidence suggests this may indeed be the case.
We took a look at the performance of a number of quarterly-rebalanced multi-factor portfolios: one equally weighted with the four factors low volatility, prime value, quality, and shareholder yield; one defensive portfolio invested equally into the low volatility and quality factor; and a cyclical portfolio invested in value and shareholder yield factors.
All three robustly outperformed the market both from January 2000 to June 2016, and from January 2009 to June 2016. And by robust we mean robust, beating the benchmark by 4%.
Where does this multi-factor outperformance come from?
One reason is simply that in 70% of the cases each individual factor outperformed on its own. It can also be attributed to diversification. In a multi-factor portfolio - as in any portfolio - high performing factors help offset any losses from underperforming ones.
When it comes to factor investing, the more seems to be the merrier indeed.