The Takeaway
Value was the best-performing factor globally in the third quarter of 2026, while momentum was the worst. Yield also outperformed the parent benchmark, while low volatility, quality, and size lagged despite posting small positive returns.
Momentum's leadership reversed sharply in the third quarter. It was the weakest factor across regions and market segments, as the memory-related semiconductor holdings that had powered its second-quarter gains pulled back. Value and yield consistently occupied the top two positions. Quality generally lagged its parent benchmarks, and size's relative performance varied across markets. Low volatility lagged in the US but outperformed in emerging markets, where the parent benchmark declined.
Factors are complementary and offer strong diversification benefits when combined in a portfolio.
Value was the best-performing factor in Q3, while momentum was the worst—a reversal of Q2's momentum leadership
The quarter reinforced how quickly factor leadership can rotate. Exhibit 10 shows that value, the strongest global factor in 2025, returned to the top of the rankings in the third quarter, followed by yield. Momentum, which led in the second quarter, fell to the bottom of the quarterly leaderboard, although it retained a narrow year-to-date lead. Quality and size, both of which outperformed in the second quarter, slipped below the parent index. Low volatility improved its quarterly ranking but remains the weakest factor year to date. This pattern highlights the cyclical nature of factor returns, and how short-horizon leadership can change quickly.
At the other end of the spectrum, the Morningstar Global Momentum Factor Index was the weakest-performing factor in the third quarter. As the index was last reconstituted in June, it entered the quarter positioned for the rally in memory-related stocks earlier in the year and was left exposed when that trend reversed and market leadership rotated toward value and yield stocks. Its largest detractors included overweight positions in SK Hynix and SanDisk, both of which fell sharply, along with underweights in Microsoft, NVIDIA, and Apple, each of which rose. Positive effects from overweight positions in Valero Energy, Newmont, Suncor Energy, and Advanced Micro Devices, as well as an underweight to Tesla, which declined, provided only a partial offset. The index's volatility over the quarter was nearly three times that of the parent benchmark.
The Morningstar Global Value Factor Index's leadership was driven primarily by stock selection rather than broad sector positioning. Its largest contributors included overweight positions in Microsoft, Accenture, Salesforce, Pfizer, and AT&T. Those gains were partly offset by underweight positions in NVIDIA, Apple, Meta Platforms, and Palantir Technologies, each of which rose, along with an overweight to International Business Machines, which declined.
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