Occam’s razor for quants: get rid of 30% of your factors

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Occam’s razor for quants: get rid of 30% of your factors

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Quantitative Profiles

Occam’s razor for quants: get rid of 30% of

your factors

Time to simplify: 31% of factors are duplicative 24 July 2026

In our latest survey of quantitative investors (see note), 22 was the average number of Equity & Quant Strategy

signals used in multi-factor approaches. But alpha and variance inflation (VIF, a measure United States

of factor redundancy) suggest a small subset is actually better, as almost a third of Savita Subramanian

factors may be duplicative (VIF > 5). We ranked Value, Growth, and Momentum (in this Equity & Quant Strategist

note) on two outputs – their average alpha and their cross-style independence (VIF). BofAS+1 646 855 3878

Top-ranked factors were EV/EBITDA, 12-mth + 1-mth Reversal price return, and 5-year savita.subramanian@bofa.com

Projected EPS growth. This equal-weighted three factor model produced the highest Alex Makedon

back-tested information ratio in our factor framework, a ~17% return p.a., (second best EquityBofAS & Quant Strategist

in our framework - Exhibit 4). See Exhibit 5 for the current screen of companies. alex.makedon@bofa.com

Jill Carey Hall, CFA

From crowded winners to forgotten losers: value, income… EquityBofAS & Quant Strategist

After a Momentum-led 1H (best factor group, +36% on avg.), July has seen one of the jill.carey@bofa.com

most severe Momentum sell-offs since the GFC, with traditional Momentum factors Victoria Roloff

down 10%-12% MTD (as of Fri.) as investors unwound crowded growth and high-beta EquityBofAS & Quant Strategist

positions. Leadership shifted: Value outperformed, led by high earnings yield and FCF victoria.roloff@bofa.com

yield (+5-6%); Div. Yield and Buyback strategies returned +4-5%.