Short answer: a factor is a characteristic that a group of shares share — being cheap, being profitable, being small, having risen recently, being steady — and that has, over long periods, gone with a return different from the market's. A plain index fund already owns all of them, in whatever proportion the market happens to hold them. A "value", "quality", "small cap", "momentum" or "minimum volatility" fund holds more of one kind than the index does, and less of the rest. That tilt is a deliberate extra bet on top of owning the market: it has paid over most long stretches in the published record, and every one of them has also lagged the index for a decade or more at a time. Nothing here ranks them or suggests one; the point is to know what your fund is doing.
Why the words are on your factsheet at all
Three reasons, roughly in order of how much they explain. First, the research: from the 1980s academics found that returns were not explained by the market alone — cheap shares, small companies and, later, recent winners and steady, profitable firms had earned more than their market risk accounted for, across countries and decades. Second, the product: once a return pattern has a name and an index, a fund can be built to track it cheaply, and "factor" or "smart beta" funds now sit on every platform beside the plain trackers. Third, the vocabulary: managers who always picked cheap shares or small companies started describing what they did in these terms, so the same words appear on active funds' factsheets too. Whichever reason put the word on yours, the meaning is the same.
The five, one at a time
Each below: what it means, what a fund with that tilt holds, and how that differs from a plain tracker of the same market. The pound examples use £10,000.
Value
What it means. Buying shares that are cheap relative to something measurable — profits, book value, dividends, cash flow. A value tilt holds the cheaper half of the market and skips the expensive half.
What the fund holds. In the UK that has meant banks, oil, mining, tobacco, insurers and utilities more than the index does, and far fewer of the fast-growing firms priced on their future. A UK value fund's price/earnings ratio might be 9 against the All-Share's 12, and its dividend yield 5% against 3.5%: £10,000 in it would be backed by about £1,100 of profit a year against £830 in the tracker, and pay about £500 of dividends against £350.
How it differs from the tracker. It owns perhaps half the companies, weighted towards the dull and the out-of-favour, and it will look wrong for years whenever the market's favourites keep rising.
Quality
What it means. Companies with high, stable profitability, little debt and steady earnings — businesses that keep making money in a recession. The screen is on the accounts, not the share price, so quality is often expensive.
What the fund holds. Consumer brands, healthcare, software, the strongest of the industrials; in Britain, the Unilevers and Diageos rather than the miners. A quality fund typically carries a higher price/earnings ratio than the index, the opposite of value.
How it differs from the tracker. Fewer companies, less of anything cyclical or indebted, and — because it pays up for reliability — a tendency to lag when a recovery lifts the weakest firms fastest.
Size (small cap)
What it means. Smaller companies, by market value, have over the long run returned more than large ones — partly a reward for being less liquid, less covered and riskier, partly because a small firm has more room to grow. A small-cap fund simply holds them.
What the fund holds. In the UK, the FTSE SmallCap and the top end of AIM: a few hundred firms most people have never heard of, each a fraction of a percent of the fund. The FTSE All-Share itself is 98% large and mid caps by value, so a tracker holds very little of them.
How it differs from the tracker. Everything about it is smaller: the companies, the dealing volumes, the analyst coverage. Its swings are larger — the FTSE SmallCap fell 13.6% in 2022 when the All-Share rose 0.3% (FTSE Russell factsheet, 31 August 2026) — and its costs are usually higher.
Momentum
What it means. Shares that have risen most over the past six to twelve months have, on average, kept rising for a while; the losers have kept losing. A momentum fund buys the recent winners and sells them once they stop winning.
What the fund holds. Whatever has been going up — which is the point and the problem. In one year that is oil and defence, in another it is technology. It is the factor with the highest turnover, and therefore the highest hidden dealing costs.
How it differs from the tracker. A tracker never sells a company for having done badly; a momentum fund does nothing else. The two hold the same market seen from opposite ends, and momentum's worst months come exactly when a market turns, because it is still holding last year's winners.
Low volatility
What it means. Shares whose prices swing least — utilities, consumer staples, some insurers and property companies — have historically delivered close to the market's return with noticeably smaller falls, which theory says should not happen. A minimum-volatility fund selects for steadiness.
What the fund holds. The dull end of the index, in a mix chosen so that the whole fund moves less than the market. It tends to overlap with quality and with high dividend yield.
How it differs from the tracker. It falls less in a bad year and rises less in a good one: in a strong rally it can lag the index by ten points or more, and it is more sensitive to interest rates than the market because so many of its holdings are bought for their income.
What each did in good and bad decades
A caution first. Money Horizon's own historical series — the Jordà-Schularick-Taylor UK data behind the safe withdrawal rate guide and the planner's stress tests — is the whole UK share market from 1871: it says nothing about factors within it. What follows comes from published long-run studies, is thinner and shorter than the site's main series, and is summarised rather than reproduced. Sources are named with their dates; treat the figures as the order of magnitude, not a promise.
- Size. The Numis (now Deutsche Numis) Smaller Companies Index annual reviews by Dimson and Marsh, which run from 1955, have consistently shown UK smaller companies ahead of the All-Share by a few points a year over the whole period — and the same reviews record the droughts: the late 1980s and most of the 1990s, when small caps lagged for the best part of a decade, and 2021–2023. Good decades: the 1970s recovery, 2000–2007, 2010–2020. Bad: 1989–1998, 2022.
- Value. Dimson, Marsh and Staunton's Global Investment Returns Yearbook (Credit Suisse, then UBS; annual since 2000) puts the long-run UK value premium — high-yield or low price-to-book shares against the rest — at a couple of points a year over more than a century, and records the longest and deepest reversal in that record: roughly 2007 to 2020, thirteen years in which value lagged growth almost without pause, before a sharp recovery in 2021–2022. Good decades: the 1970s, 2000–2006. Bad: 1990s technology boom, 2007–2020.
- Momentum. The same Yearbook (2008 edition, updated since) found momentum the largest premium of all in UK data back to 1900: past winners beat past losers by around ten points a year on paper, before the dealing costs of turning the portfolio over several times a year. It also records the "momentum crashes": 2009, when the previous year's losers rebounded fastest, and early 2020–21, which took years to recover from.
- Quality and low volatility. Both are younger as investable ideas. MSCI's World Quality and Minimum Volatility indices, calculated back to the late 1980s and launched around 2008–2012, show quality ahead of the world index over that period and minimum volatility close to it with about a fifth to a quarter less volatility (MSCI factsheets, monthly). Their bad years are the rallies: 2009, 2020–21 for low volatility; 2022's rate rises for the more expensive quality names. Both records contain more back-test than live history, which the academic literature warns tends to flatter.
The pattern across all five is the same: a long-run average that looks like free money, and stretches of five to fifteen years in which it was anything but.
Do I need any of this?
For a planner, the honest answer is no — not as a requirement. A broad index fund already holds every value share, every small company, every recent winner and every steady utility, at the weights the market gives them, for a charge of a few hundredths of a percent. A tilt is a second decision on top of the first one: an extra bet that one of these premiums will show up during your holding period, paid for with a higher charge, higher turnover, and the certainty of some years — possibly a decade — behind the plain tracker. Money Horizon's planner models the asset mix (shares, bonds, cash, property) and the charge; it does not model factor tilts, because their effect over any one person's horizon is not something the evidence supports putting a number on.
Which is right depends on…
- Whether you would hold on through the bad decade. The published premiums were earned by people who did not sell in 1998 or 2019. If a long stretch behind the index would make you switch, the tilt is likely to cost you the premium and the patience both.
- Charges and turnover. A factor fund at 0.30–0.50% against a tracker at 0.10% needs the premium to show up just to break even; the cost of fees calculator turns the gap into pounds over your years.
- What you already own. Many active UK funds are value or quality tilts by another name; adding a factor fund to one of those may double a bet you did not know you had.
- Whether it is the mix or the tilt that matters. For most plans the shares-versus-bonds decision moves the outcome by tens of thousands of pounds; the tilt moves it by hundreds either way. The planner's risk levels are about the first.
How to spot a tilt on a factsheet
- The name. "Value", "Quality", "Small Cap", "Momentum", "Minimum Volatility", "Dividend", "Enhanced", "Smart Beta", "Factor" — any of these in the fund's name is the fund telling you.
- The benchmark. A tracker follows a plain index (FTSE All-Share, FTSE All-World, MSCI World). A factor fund follows a variant: MSCI World Value Weighted, FTSE Developed Minimum Variance, MSCI World Momentum. The suffix is the tilt.
- The top ten holdings. If a UK fund's top ten is banks, oil and tobacco, it is a value tilt whatever it is called; if it is consumer brands and healthcare with a price/earnings ratio above the index's, quality; if it changes completely from one factsheet to the next, momentum.
- The style box and the characteristics table. Most factsheets print a nine-square value–blend–growth by large–mid–small grid, and a table of the fund's price/earnings, price/book, dividend yield and average market capitalisation against the index. Read the fund's numbers against the index's: lower P/E and higher yield mean value; higher P/E and higher return on equity mean quality; a smaller average company size means a size tilt.
The funds by risk level page now carries a "what it holds" row under each fund for exactly these facts, as recorded from the factsheet and dated; the multi-asset funds there are plain market-weight trackers inside, which is why they appear at all.
Questions people ask
Is a factor fund an active fund? It sits between. The rules are fixed and published like an index fund's, but the rules were chosen to beat the market, which is an active decision. Charges are usually between the two as well.
Does a global tracker already have a value or growth tilt? A market-weight tracker holds whatever the market holds, so it leans wherever the market has leaned: in the mid-2020s that meant large American technology companies, which is a growth tilt by default. That is not a reason to correct it, only to know it.
Are small companies always riskier? Their prices swing more and they fall further in a crisis, and they are harder to sell in a hurry. Over the long published record they have also returned more. Both are true; neither is guaranteed for the next ten years.
Why did value do so badly from 2007 to 2020? Falling interest rates made far-off profits worth more, which favours growth companies; technology platforms grew into their prices; and banks, energy and retail — the classic value sectors — had their own long troubles. Whether that was a permanent change or the longest bad patch in the record is exactly the argument that makes a tilt a bet.
Where do the figures in this guide come from? The Numis / Deutsche Numis Smaller Companies Index annual reviews (Dimson and Marsh, from 1955); the Dimson, Marsh and Staunton Global Investment Returns Yearbook (Credit Suisse 2008 and later editions, UBS from 2024); MSCI factor index factsheets; the FTSE Russell FTSE All-Share factsheet of 31 August 2026 for the 2022 figures. Money Horizon's own series (Jordà-Schularick-Taylor, UK 1871–2020) covers the market as a whole and is not used for factor returns.