ETF Factor Performance 2026: Momentum Lags, Defensive Strategies Advance
Dividend and value factor ETFs are outperforming in 2026 as momentum lags amid tech weakness. A closer look at shifting US equity factor leadership.
Among U.S. equity investment factors, momentum performed the best in 2025, ending the year with a 17.78% return and outperforming the other factors. However, thus far in 2026, momentum has lagged its factor peers, and its underperformance can be attributed to large exposure to the information technology sector, which has had a negative year-to-date return as of February 25, 2026.
A Look at Dividends and Value
With investors appearing increasingly weary and uncertain about continued investment in AI and its potential implications for society at large, the pivot towards defensive sectors has led to strong performance for both the dividend and value investment factors. As shown in the preceding charts, the year-to-date performance (as of February 25th, 2026) of the dividend factor exceeds its year-end performance in 2025. The dividend factor reflects equities that have consistently increased dividend payouts, indicating their ability to reward and return capital to their investors.
Regarding the value factor, the compelling performance it exhibited in 2025 relative to other factors has continued into 2026. With market sentiment shifting towards companies with ‘low obsolescence’ attributes, well-established firms trading at prices below their perceived intrinsic value will be seen as attractive.
Understanding Your Exposure and Taking Action
For investors interested in factor-based investing, Fidelity’s Factor ETF suite offers straightforward exposure to each factor. For investors seeking exposure to dividend and value factors, Fidelity’s Dividend Factor ETFs and Value Factor ETFs can facilitate the respective market exposures.
However, investors should be aware of how a specific factor could influence their overall portfolio. Though both factors are performing well now, this may change as the economic cycle shifts. As such, investors need to be ready to adjust their exposure to factors as economic conditions require.
This article was written on February 25th, 2026. Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.
