Factor investing in 2026: Alpha and value strategies outperform as defensives lag

Alpha investing pays off over the long run

Investors in 2026 have leaned towards Valuation-driven and Alpha-oriented strategies. The Alpha factor has been the standout performer, with stocks that delivered strong historical excess returns continuing to outperform despite volatile markets. The Value strategy has also held up well, as investors increasingly favoured fundamentally inexpensive companies.

The Equal Weight index has remained broadly flat, indicating more dispersed returns, with several smaller constituents either holding steady or generating gains. In contrast, the Nifty 500 has declined 3.8%, reflecting broader market weakness.

On the other hand, Quality and Low Volatility factors have underperformed. Traditionally seen as defensive plays during uncertain periods, these strategies have faced a reversal in investor preference this year. Valuation compression has weighed on Quality strategy, while reduced interest in defensive sectors such as consumer staples and utilities has dragged down the performance of Low Volatility strategy.

Source: NSE. *2026 data are year-to-date based on 30 June 2026 closing values. Other years' returns are calculated between the first and the last trading day closing values. 10-year return is compounded average return. Indices considered-Equal Weight: Nifty100 Equal Weight, Low Volatility: Nifty100 Low Volatility 30, Alpha: Nifty200 Alpha 30, Momentum: Nifty200 Momentum 30, Quality: Nifty200 Quality 30, Value: Nifty200 Value 30, Nifty 500: Nifty 500.

Long-term performance

Over the past decade, the Alpha factor has emerged as the clear standout, underscoring the effectiveness of strategies focused on identifying stocks capable of consistently outperforming the broader market. Momentum has been the next best performer, highlighting how investing in stocks with strong price trends has created substantial wealth over time. The Value factor, too, has delivered robust compounded returns, benefiting from periodic market rotations into attractively valued stocks.