Factors have become an influential force in investors’ decision-making processes, buttressed by a growing body of academic and financial industry research that has affirmed the effectiveness of factors in driving risk and returns. But to get the most value from factor investing strategies, investors should first gain a more comprehensive understanding of how and why factors behave the way they do.  

This paper seeks to provide a nuanced framework to help investors form more realistic expectations of how factors perform over full economic cycles. First, we cover the standard characteristics from an unconditional standpoint, meaning we examine how the factors behave on average over the entire time period. Next, we look more deeply at each factor’s conditional behavior—that is, how they have performed depending on the stage of the market or economic cycle. Lastly, we examine these same unconditional and conditional behaviors within a multifactor context.