The Reports of Factor Investing’s Death Are Greatly Exaggerated

In response to rumors of his demise, Mark Twain famously quipped, “the reports of my death are greatly exaggerated.” The same can be said for the recent declarations about the end of factor investing, particularly value investing.

The underperformance of size and value factors in U.S. equity markets since the Global Financial Crisis (GFC) has led some investors to pronounce factor investing dead. Yet, this view ignores a fundamental truth: all risk assets—including factors—experience extended periods of underperformance. If they didn’t, there would be no risk premium to earn. For example, the S&P 500, which is heavily exposed to the market beta factor, underperformed risk-free T-bills for 15 years (1929–1943), 17 years (1966–1982), and 13 years (2000–2012). These cycles are not unique to value or size; they are intrinsic to all sources of risk.

To properly evaluate the “death” narrative, it’s crucial to look beyond U.S. borders and consider implementation realities. Using cost-efficient, real-world vehicles such as Dimensional Fund Advisors’ international funds, we see a different story. From October 1996 to May 2025:

• DISVX (International Small Value): 7.95% annualized return

• DFISX (International Small): 7.02%

• DFIVX (International Value): 6.66%

• MSCI EAFE Index (net dividends): 5.45%

All three Dimensional funds outperformed the broad MSCI EAFE Index, even though the index has no expense ratio or transaction costs, making this a conservative comparison.

Looking at performance in emerging markets we see similar results. Over the period 1/1999-5/2025 (when data first available):

· DEFVX (Emerging Value): 9.75% annualized return

· DEMSX (Emerging Small): 10.51%

· MSCI Emerging Markets (net dividends): 7.75%

We can also look at performance in the post-GFC period (when US factors underperformed).

• DISVX (International Small Value): 9.71% annualized return

• DFISX (International Small): 9.54%

• DFIVX (International Value): 7.96%

• MSCI EAFE Index (net dividends): 7.77%

• DFEVX (Emerging Value): 7.59%

• DEMSX (Emerging Small): 9.93%

• MSCI Emerging Markets (net dividends): 6.99%

Once again we see that all five Dimensional funds outperformed in the post-GFC period.

A further test of factor robustness comes from AQR’s pure factor fund (QSPRX), which uses a long/short approach to capture value, quality (defensive), momentum, and carry. Since June 2015, it has returned about 6.5% annually, beating T-bills by approximately 5%—a substantial premium during a period when many declared factor investing obsolete. It is important to note that QSPRX’s performance was achieved with no tailwind from equity beta (zero correlation with global equities)—many long/short funds have beta exposures (i.e., 0.5 beta).

Critics often overlook the primary reason for value’s recent underperformance in the US: not disappointing earnings, but a dramatic widening in the valuation spread between growth and value stocks. Such extremes in valuation are unlikely to persist indefinitely. Historically, these spreads revert to the mean, setting the stage for potential future outperformance.

In summary, the evidence from global markets and real-world fund implementation suggests that factor investing—especially value and size—remains alive and well. Periods of underperformance are not only expected, but necessary for these strategies to offer a risk premium over time.

Key Takeaways

• Factor investing’s “death” is a cyclical narrative, not a structural reality.

• Global evidence and real-world fund data support the persistence of factor premiums.

• Underperformance is often driven by valuation extremes, not fundamental deterioration.

• Patience and diversification across factors and geographies remain essential for long-term investors.