The factor files: Case of the winning combos

Summary: What if you could combine the best traits of different stocks to build a smarter portfolio? This story explores a rising trend in passive investing that blends multiple strategies to smooth returns and chase outperformance. But is the promise too good to last? Over the past five years, fund houses have launched 86 passive factor funds. Almost all of them focus on a single factor, such as momentum, value, quality, alpha or low volatility. But here’s the catch: no single factor works all the time. That is why the latest trend is to combine them. Much like asset diversification, mixing factors aims to smooth out the journey and improve long-term performance. Today, we will explore a multi-factor strategy that has the potential to rival most flexi-cap funds, offering both outperformance and consistency. But first, let us understand what these “factors” actually mean. What are factors? Factors are traits that help explain why some stocks do better than others. Popular ones include momentum (stocks that have risen recently and may keep rising), value (stocks that are cheap relative to earnings or book value), quality (companies with strong financials and consistent profits), low volatility (stocks that swing less than the broader market), and alpha (stocks that consistently outperform on a risk-adjusted basis). The factor wheel keeps turning As mentioned earlier, no single factor wins forever. To illustrate this, we looked at how various factors performed across three market phases since 2005: bearish (Nifty 500 down 15 p