The Active vs Passive: Smart Factors, Market Portfolio or Both?

21 Pages Posted: 12 Jan 2021 Last revised: 10 Mar 2021

See all articles by Matus Padysak

Matus Padysak

Comenius University - Faculty of Mathematics, Physics and Informatics;

Date Written: December 9, 2020


While there may be debates about passive and active investing, and even blogs about the numbers of active funds that were outperformed by the market, the history taught us that the outperformance of active or passive investing is cyclical. As a proxy for the active investing, the paper examines factor strategies and their smart allocation using fast or slow time-series momentum signals, the relative weights based on the strength of the signals and even blending the signals. While the performance can be significantly improved, using those smart approaches, the factors still got beaten by the market in both US and EAFE sample. However, the passive approach did not show to be superior. The factor strategies and market are significantly negatively correlated and impressively complement each other. The combined Smart Factors and market portfolio vastly outperforms both factors and market throughout the sample in both markets. With the combined approach, the ever-present market falls can be at least mitigated or profitable thanks to the factors.

Keywords: passive investing, active investing, market timing, smart beta, factors, factor allocation, momentum, factor momentum

Suggested Citation

Padyšák, Matúš and Padyšák, Matúš, The Active vs Passive: Smart Factors, Market Portfolio or Both? (December 9, 2020). Available at SSRN: or

Matúš Padyšák (Contact Author) ( email )

Dulovo namestie 14
Bratislava, 85110

Comenius University - Faculty of Mathematics, Physics and Informatics

Mlynská dolina
SK-842 48 Bratislava, Bratislava 842 48

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