Portfolio allocation via Fama-French factors

Using the 6 benchmark portfolios from the Ken French data library, segmented on size and value, I have illustrated the performance of these factors over 50 years.  The y values are reset every decade to facilitate comparison.

The benchmark auto-correlation property is exploited by only investing when the previous month returns are positive.

In the legend, row 1 contains the portfolios and row 2 aggregated “Small”, “High” (value) and “All” (total market).

blog figs

Several interesting conclusions may be drawn:

  • “Small” and “High” (value) normally outperform the total market (bold green lines).
  • “Small Value” (s/h) typically leads all categories.
  • Growth investing is almost always a poor strategy.
  • The best returns per decade are typically 5x (CAGR 17%).
  • Since 2010, size and value have simply matched total market returns.

Tilting away from growth increases return in almost any time period studied (i.e towards value).  James Montier would wholeheartedly agree! (more in a future post).

Also, more on autocorrelation (or serial correlation) of funds in the next post.

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3 thoughts on “Portfolio allocation via Fama-French factors

  1. Pingback: Fama-French momentum: segmented performance and recessions | RRSP Strategy

  2. Pingback: Seasonality III: Fama-French factors | RRSP Strategy

  3. Pingback: Link between HML factor and future GDP growth | RRSP Strategy

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