A recent study from The Leuthold Group finds that most alpha claimed by factor investing occurs in bear market environments:

We believe market phases or cycles are critical to understanding any investment approach. We applied this perspective to our factor analysis by identifying bull and bear market phases since 1980 and segmenting factor returns based on this distinction. Reviewing the last two columns in Table 1, we were surprised by the modest alpha most factors experienced in bull markets. Only High Beta earned more in bull markets than it did overall, posting a 9.0% excess return in up markets. The other ten factors had bull market alphas lower than their overall scores and six are negative.



Is factor investing a back-door timing strategy?  It appears so.

Kudos to Leuthold for this important work.