Factor ETF 10-Year Decomposition: Value, Momentum, and Quality Compounding
Quality factors demonstrated a 12.3% CAGR over the last decade, offering the tightest risk-adjusted compounding metrics among single factors.Momentum strategies suffered a massive 34% peak-to-trough drawdown in 2022, severely impacting the long-term compounding base.Value ETF performance diverges from historical norms, acting more as a structural overweight on mature cyclical sectors rather than a pure valuation capture. The Long-Term Compounding Reality of Single Factors Monthly $30K investment 20-year compound growth simulation Factor investing isolates specific equity drivers to generate excess returns. Over a 10-year horizon, slight variations in compound annual growth rate (CAGR) and drawdown severity create immense disparities in terminal wealth. The chart below, simulating a monthly $300 investment over 20 years at 4%, 7%, and 10% annual rates, demonstrates this perfectly. Looking at the chart, the 10% curve is the most impressive, showing over +85% total growth in the latter half purely through the acceleration of retained compounding. ...