Factor Performance During Times of Crisis Including COVID-19

Why diversifying across well-defined factors is likely to be key in extreme volatility.

Franklin Templeton Multi-Asset Solutions


It is an obvious point to state that 2020 has been a period of extreme financial market volatility. The market gyrations have been precipitated by the response to a global pandemic of epic proportions—more than 180 countries have been impacted by the COVID-19 virus at this time.

Factors that we track—value, quality, momentum and low volatility—work well over a full market cycle (as evidenced by industry and practitioner research), and relative performance can depend on which part of the cycle we are in. Interestingly, factor behavior in the current environment has been consistent with past downturns and crisis periods.

A philosophy that diversifies across well-defined factors that have been combined in a meaningful manner is likely to be key to performance potential. Even during a period of extreme volatility, we expect such an approach can provide some downside protection while positioning a portfolio for the longer term.

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All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.