Summary of this article
Value outperformed amid volatility; momentum and growth lagged
Factor returns swung sharply across quarters in 2025
Valuation resets may support broader factor recovery
Multi-factor strategies better suited for volatile markets
Data for the calendar year 2025 shows that value strategy outperformed with two indices, namely– Nifty200 Value 30 topping the charts with 15.70 per cent returns, followed by the Nifty500 Value 50 with returns of around 12.80 per cent. Low Volatility strategies also fared reasonably well, offering relative stability in a choppy market.
In contrast, quality, alpha and momentum strategies stood as laggards, with some indices showing double-digit negative returns.
Going by the quarterly data, the year itself unfolded in phases. Factor performance was weak in the first quarter, rebounded sharply in Q2, and then moderated through the second half.
According to Edelweiss Mutual Fund, event-driven news flow and pressure on earnings weighed on factor returns for most of the year, particularly those tilted towards growth-heavy and high-multiple segments. Value emerged as the clear leader, delivering roughly 15 per cent returns in calendar year 2025 and outperforming the broader index for the fifth consecutive year.
Momentum, which had enjoyed a stellar run since 2019, lost steam. After six strong years, the factor returned just about 3 per cent in 2025, trailing the headline indices as volatility disrupted trend-based strategies. Momentum funds delivered on average
Factor Investing: What to Expect in 2026?
Looking ahead to 2026, Edelweiss Mutual Fund said it expects factor performance to improve meaningfully. Better earnings visibility, easing foreign outflows and a supportive macro backdrop could help normalise returns across factors, it said. Importantly, valuations across broader factor strategies have also corrected, creating room for recovery, it added.
The fund house said that the market leadership could widen in 2026. While large-caps have outperformed in the risk-off environment of 2025, improved Price/Earnings to Growth (PEG) ratios may allow mid- and small-caps to perform reasonably well in the coming year.
“We are optimistic towards growth and momentum for participation in recovery, while anchoring with value factors for valuation discipline,” the fund house said.
At a factor level, the fund house said that momentum may benefit from a valuation reset and improving earnings visibility. Quality, however, remained challenging due to continued weakness in IT and consumption-driven earnings, it added.
It further said that growth portfolios, led by capital goods and healthcare, show strong earnings traction, though valuations have capped returns.
Value remains closely tied to commodities, making it sensitive to macro conditions and price movements, it added.
Edelweiss Mutual Fund said that in volatile markets, multi-factor strategies tend to fare better than single-factor bets.
“When markets are volatile, strategies that deploy multi-factors tend to do better than single factor funds. An overlay of momentum with other factors such as growth or value could be a good alternative to manage downside protection while maintaining market exposure for potential gains,” it added.
