Last year was marked by some dramatic changes in the factors that had dominant performance. Value made a comeback, while growth lagged. Small-cap stocks had been steadily gaining ground on large caps through much of the year and spiked higher in the weeks following the U.S. election. Low-volatility stocks, which had been outperforming the market at large as well as more-volatile names, were getting left in high-beta stocks' dust.
To be clear, this sort of reshuffling is a regular feature of not just factors, but sectors, asset classes -- you name it. The lessons to be learned from these perpetual games of leapfrog -- diversification and discipline -- are essential. Implementing those lessons is hard.
Reminder: Factors are cyclical
Below is a table of U.S. stock returns for various factors, in which I use strategic-beta exchange-traded funds as proxies for those factors. It is immediately apparent that a regular scramble is the norm. It is important to remember that there is typically a yawning gap between the performance of factors as derived in academia and the investable versions of those same factors represented by these funds. Nonetheless, these funds are some of your best options for harnessing these factors in your portfolio.
Exhibit 2 provides a longer look at the behaviour of these funds over the past nine-plus years (for the sake of consistency, I stopped a month shy of including a full 10 years' data). There are a number of important reminders in this data. First, while over multidecade time horizons each of the factors represented by these funds has been shown to produce excess returns relative to the market at large, each can lag the market for long stretches. This is evidenced by the fact that dividend-oriented strategies and value have lagged the broad market over the near decade-long period in question.
Second, those excess returns have a cost. That cost can be measured in greater relative drawdowns and overall volatility -- as was the case for three of the five funds that outperformed the 
Vanguard Total Stock Market ETF (VTI) during this period. Why does this matter? Because more-volatile funds tend to be used poorly by investors. Capitalizing on these factors requires that you be on the platform, ticket in hand, when the value, size or dividend train arrives at the station. These factors have tried many investors' patience, which is coincidentally part of why they exist to begin with. Hanging on requires discipline.
Value vs. Growth
Vanguard Value ETF (VTV) has lagged Vanguard Growth ETF (VUG) for over a decade. This has tried the patience of even some of the most faithful value investors. But value made a comeback in 2016. For the year through Nov. 30, VTV outperformed VUG by nearly 9 percentage points. This wasn't magic, but classic value investing in action. The largest contributors to VTV's performance through the first 11 months of the year were stocks in the financials, industrials and energy sectors. These stocks entered 2016 battered and bruised and took some additional lumps early in the year. Fast-forward to the end of November, and these three sectors were the best performers within the S&P 500. At the risk of stating the obvious, value works best when there are values in the market.
Source: Morningstar Direct. Data from Dec. 1, 2013 through Nov. 30, 2016.
Small vs. large
Small-cap U.S. stocks, represented here by iShares Core S&P Small-Cap ETF (IJR), had spent the better part of the past three years lagging their large-cap counterparts, represented here by iShares Core S&P 500 ETF (IVV). This reversed in a big way late in 2016. In the month of November, IJR outperformed IVV by nearly 9 percentage points. This was driven in large part by a post-election rally in small-cap technology, industrials and materials firms. It is too soon to tell whether this event-driven boost in small-cap stocks is overdone, but it is further evidence of the fickle nature of factors' performance.
Source: Morningstar Direct. Data from Dec. 1, 2013 through Nov. 30, 2016.
High beta vs. low volatility
Low-volatility stocks have been market darlings in recent years as investors have flocked to safer equities in search of income and the prospect of a smoother ride for the equity sleeves of their portfolios. Higher-beta stocks, represented here by PowerShares S&P 500 High Beta ETF (SPHB), have lagged their less risky peers, represented here by PowerShares S&P 500 Low Volatility ETF (SPLV), for the past three years and endured a particularly difficult stretch that began in the middle of 2015. But beginning early in 2016, some of the market's most sensitive names have bounced back. SPHB outperformed SPLV by nearly 18 percentage points in 2016 through November. This owes chiefly to SPHB's large allocation to energy stocks -- which are absent from SPLV's portfolio.
Key take-aways
Factors have cycles. They will experience stretches of outperformance and underperformance relative to other factors as well as the broader market. No two cycles are identical. These periods can be spurred by different fundamentals and will vary in length. Often¬times, they will lag for a duration that is many multiples the duration of an average investor's patience.
The payoff to any given factor may be concentrated in a short period. Think of value after the bursting of the tech bubble. Predicting these spurts is impossible. Factors' cyclicality is also part of why they exist. Investor behaviour is a key driver of factors' ups and downs.
Trying to time factors is a bad idea. It is all but impossible to do well, and the payoff of implementing a successful timing strategy isn't likely great enough to justify the risk. As is virtually always the case, diversification is probably your best bet. Combining a number of single-factor funds or investing in a multifactor fund could diminish the likelihood of bad behaviour and thus increase the odds that you'll put factors to good use.
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