How Inefficient is the 1/N Strategy for a Factor Investor?

The last decade’s dramatic democratization of factor investing has broadened its investor base to individual investors and their advisors. This paper studies the performance of classic allocation strategies—1/N, mean-variance, and minimum-variance—from these investors’ perspective. Specifically, we curate commonly available long-only factor funds, adjust their premia for transaction costs, impose sensible concentration limits, and explicitly focus on active risk-and- return properties. Block bootstrap-based simulation shows that no alternative optimization strategy consistently dominates the simple 1/N strategy in active returns and information ratios. 1/N allocation appears a sensible strategic allocation for most factor investors without an edge in predicting factor premium