Whitepaper - June 2019

What Is a Factor? Part 2: The Impact of the Long-Only Constraint

In this paper we extend our analysis of how the construction of a factor portfolio, even using the same underlying factor definition, can have substantial impact on the returns the factor generates. The current paper digs deeper into the impact of a long-only constraint, and describes the characteristics of these portfolios as well as the associated performance. One main goal is to describe how a traditional factor-mimicking portfolio might misstate the returns a long-only manager can achieve.


Melissa R. Brown, CFA

Managing Director of Applied Research