The Style Allocation Dilemma

Should Investors Focus on Absolute Returns or Beating the Benchmark?

Executive Summary

The September 2025 study, “Strategic Style Allocation: Absolute or Relative?“ reveals a fundamental tension in factor investing that has puzzled practitioners for decades. While equity style factors like value, momentum, quality, and low volatility have proven their worth over long periods, many investors abandon them after just a few years of underperformance. The years 2018 to 2020 were a striking example as despite their strong long-run performance, stocks with attractive style characteristics lagged the broad market, leading to declines in factor strategy assets under management in 2021. The research, analyzing over 60 years of U.S. market data (1963-2025) plus global evidence, provides clear guidance on how different types of investors should approach style allocation based on their specific objectives.

What the Research Examined

The author, Pim van Vliet, tackled one of the most pressing questions in modern portfolio management: how should investors strategically allocate to equity style factors when facing the competing demands of absolute performance versus benchmark-relative performance?

Using data from Kenneth French’s database and global MSCI indices, van Vliet analyzed the performance of major equity style factors including:

• Value (book-to-price ratios)

• Momentum (12-1 month price returns)

• Quality/Profitability (operating profitability metrics)

• Investment (asset growth patterns)

• Low Volatility (90-day volatility measures)

• Size (small-cap effect)

The study examined these factors under two distinct investment frameworks:

1. Absolute return objective: maximizing the Sharpe ratio for long-term wealth building

2. Benchmark-relative objective: maximizing the information ratio (measure of a fund’s returns against a benchmark and the volatility, or consistency, of those returns) for consistent outperformance

Key Findings: The Great Divide

The Performance Paradox