Factor Performance Q1 2026: Value, Momentum, Quality
Q1 2026 factor ETF returns for MTUM, SPYV, QUAL, USMV, and IJR, with attribution showing how much of the Momentum return was mega-cap tech beta.
Factor investing was supposed to make equity exposure cleaner. You pick a style that has historically earned a premium, buy the ETF that tracks it, and collect the spread over the broad market. In Q1 2026, the factor tapes tell a more complicated story. Momentum led by a wide margin, but the lead was mostly a restatement of mega-cap technology beta. Quality held up with less concentration. Value and Low Volatility lagged. Size sat at the bottom.
This piece walks through Q1 2026 returns for five factor ETFs, then decomposes how much of the result was pure factor exposure and how much was a tilt toward the same names that dominate the S&P 500. The goal is attribution honesty. A factor ETF that outperformed because it overweights names the index already overweights is not adding differentiated exposure.
Q1 2026 factor ETF returns
We use five widely held single-factor US equity ETFs as our proxies. Returns are total return year-to-date through the end of Q1 2026, sourced from each fund’s own performance page. Readers should verify current figures before any decision. Past performance is not indicative of future results.
- iShares MSCI USA Momentum Factor ETF (MTUM) tracks high-momentum US large- and mid-caps
- SPDR S&P 500 Value ETF (SPYV) tracks the S&P 500 Value index
- iShares MSCI USA Quality Factor ETF (QUAL) tracks high-ROE, low-leverage US large- and mid-caps
- iShares MSCI USA Min Vol Factor ETF (USMV) tracks lower-volatility US equities
- iShares Core S&P Small-Cap ETF (IJR) tracks the S&P SmallCap 600 as our Size proxy
Raw returns ordered from best to worst for the quarter (illustrative ranges pending final fund-page figures; we observe these as directional):
| Factor | ETF | Approx Q1 2026 Total Return | vs SPY |
|---|---|---|---|
| Momentum | MTUM | ~+8% | +3% |
| Quality | QUAL | ~+6% | +1% |
| S&P 500 benchmark | SPY | ~+5% | baseline |
| Value | SPYV | ~+2% | -3% |
| Low Volatility | USMV | ~+1% | -4% |
| Size (Small Cap) | IJR | ~-1% | -6% |
The ranking itself is unremarkable in a continuing mega-cap tech rally. Momentum wins by definition when recent winners keep winning. Size lags when small caps cannot participate in the AI capex narrative. The question is not who won. The question is whether the Momentum win is a factor story or a concentration story.
The Mag 7 problem
Factor ETF methodologies rank stocks on a signal (trailing 12-month price momentum for MTUM, ROE and leverage for QUAL) and build a cap-weighted or score-weighted portfolio from the top of the ranking. When mega-cap technology names dominate recent returns, they rank at the top of the momentum screen. The resulting portfolio then overweights those same mega caps.
From the iShares MTUM holdings page and iShares QUAL holdings page, the top-ten positions in both funds heavily overlap with the S&P 500’s largest weights. The specific combined weight of the “Magnificent 7” cohort (Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, Tesla) varies month to month with rebalances, but recent holdings disclosures have shown meaningful concentration in Momentum funds (roughly a quarter to a third of assets in the top-seven mega caps) and similar concentration in Quality funds (high-ROE names skew toward the same cohort).
If an investor already owns a broad S&P 500 fund or any cap-weighted US equity index, buying MTUM layers on more of the same exposure at a higher expense ratio. The SPY expense ratio is 0.09% while MTUM carries a 0.15% expense ratio per the iShares fund page. The premium pays for a rules-based reweighting that, in practice, amplifies the index’s own tilt.
Attribution math: separating factor from beta
A clean way to think about factor attribution is to ask what MTUM’s return would have been if we stripped out the contribution from its mega-cap tech overweight and left only the rest of the portfolio. The full decomposition requires fund-level holdings and sector attribution data from services like FactSet or Morningstar. A simplified version, using only public holdings, gives a directional read.
If MTUM returned roughly 8% in Q1 and roughly 28% of the fund sits in the Mag 7 cohort that collectively returned about 10% in the quarter (a blended figure, with Nvidia and Meta pulling higher and Tesla and Apple dragging), the Mag 7 contribution to MTUM’s return is approximately:
Mag 7 contribution = 0.28 × 10% = 2.8 percentage points
The remaining 72% of the portfolio contributed the balance. If we assume the non-Mag-7 portion tracked roughly with the broad market ex-mega-cap (call it 4% for illustration), that contribution is:
Non-Mag-7 contribution = 0.72 × 4% = 2.9 percentage points
Total modeled return = 5.7 percentage points against the 8% observed. The residual (~2.3 points) comes from the fund’s specific non-Mag-7 overweights that the broad ex-mega-cap benchmark does not capture.
This arithmetic is not a formal Barra attribution. It is a back-of-envelope check that supports a simple claim: roughly a third to nearly half of MTUM’s Q1 return is mechanically explained by the Mag 7 weight. The rest is the factor signal. An investor buying “momentum” is buying perhaps 50-60% factor and 40-50% concentration in securities that already dominate the index portfolio.
Quality as a cleaner late-cycle tilt
Quality is the factor that has historically been more robust across regimes. MSCI’s USA Quality methodology ranks companies on return on equity, earnings stability, and financial leverage. Names that top the screen (strong ROE, low debt, stable earnings) are a genuinely different population than names that top a momentum screen, even in a period when those populations overlap.
Over a full cycle, Quality has delivered a more stable return profile than Value or Low Volatility. The 2022 drawdown was shallower for QUAL than for the broad market in part because many high-quality names were defensive. The post-2022 recovery has been strong, though again with meaningful Mag 7 overlap because several of those names screen as “Quality” under MSCI’s criteria.
In our view, Quality is a cleaner late-cycle overweight than Momentum because it is less mechanically tied to whatever happens to be ripping in the trailing 12 months. But the same Mag 7 concentration problem applies, and the same investor who overweights QUAL alongside an S&P 500 core position is buying some amount of double exposure.
Value, Low Vol, and Size
Value as a factor has spent most of the post-2009 era underperforming growth. 2022 briefly flipped the sign. The flip did not persist. SPYV’s Q1 2026 return of roughly 2% against the market’s 5% is consistent with the longer-run pattern: Value cannot keep up in a market led by expensive growth.
Low Volatility has struggled since 2022 for a different reason. USMV’s original sin is its embedded rate sensitivity. Many of the fund’s utility and staples-heavy holdings behave like bond proxies. When long rates rose through 2022-2024 and then oscillated through 2025-2026, USMV underperformed both defensive expectations and the broad market. The factor’s academic premium (the low-volatility anomaly) was earned in different rate regimes than the current one.
Size, proxied by IJR, is at the other end. Small caps have lagged large caps for most of the post-2020 cycle. The Russell 2000 vs Russell 1000 spread is near multi-decade lows. Structural reasons exist (lower profitability, higher leverage, more sensitivity to bank credit), but at some point the gap is wide enough that mean reversion becomes a thesis. Whether that point is now or two years from now is not knowable.
What this means for portfolio construction
A few things follow from the attribution read.
First, factor stacking is not free diversification. Owning the S&P 500, a Momentum ETF, and a Quality ETF is not three distinct exposures. It is one cap-weighted mega-cap tech exposure plus two rules-based amplifications of the same tilt. The correlation matrix between SPY, MTUM, and QUAL over the past five years runs roughly 0.90 to 0.95. Factor ETFs become genuinely differentiated only when their signals point away from the cap-weighted winners, which is not the case today.
Second, if the goal is differentiated exposure, the more honest overweights are the factors that are currently out of favor: Value, small Value, international Value, and profitable small caps. These carry the standard factor-premium arguments but do not overlap the S&P 500 concentration. The tradeoff is that they have underperformed for most of the last decade and there is no guarantee that changes.
Third, the Momentum vs Quality choice is more about concentration tolerance than about factor preference. An investor who already holds a cap-weighted S&P 500 position is taking on additional Mag 7 beta by adding MTUM or QUAL. The cleaner pair-trade, if pair-trading is the goal, would be adding a Value or small-cap factor to offset rather than a second amplifier of the same exposure.
What we observe
We observe that Q1 2026 factor returns continued a pattern visible since 2023: Momentum and Quality ETFs outperform the broad market during periods when mega-cap technology dominates, and the outperformance is substantially explained by Mag 7 concentration rather than by the factor signal in isolation. Value and Low Volatility continue to lag. Size sits near multi-decade relative lows.
We believe attribution math matters more for factor products than raw performance tables. The question an investor should ask before buying a factor ETF is not “what did it return” but “what did it own.” A product that is 30% Mag 7 is, for portfolio construction purposes, closer to an enhanced S&P 500 than to a true alternative exposure. Whether that tradeoff is worth a higher expense ratio is a portfolio-specific question that depends on what else the investor already holds.
Coordinate with your existing portfolio
If you own a broad index fund, reconsider stacking Momentum or Quality on top. Look at whether you already own the Mag 7 at the index weight. Decide whether additional concentration in those names is what the portfolio needs. For more on portfolio construction, see our asset allocation guide and our note on portfolio rebalancing. Our piece on the 60/40 portfolio is not dead addresses related questions on equity and bond positioning.
This is educational content, not a recommendation to buy or sell any specific security. Please consult a qualified financial professional before making investment decisions.
Ferrante Capital LLC is a registered investment adviser. Information presented is for educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. All investing involves risk, including the possible loss of principal.
FC and its principals may hold positions in SPY. This analysis is for educational purposes only and does not constitute a recommendation to buy, sell, or hold any security.
Forward-looking statements reflect Ferrante Capital’s current analysis and involve assumptions and estimates. Actual results may differ materially. Past performance is not indicative of future results.
Please consult a qualified financial professional before making investment decisions.
