UBS Global Wealth Management argues that decades-old factor investment models are obsolete. The article reveals that traditional frameworks like Fama-French’s three-factor theory explain just 3% of stock returns, with country and industry factors accounting for 21%. 52% of market performance remains unexplained by systematic factors, highlighting a critical gap in current investment strategies.

The author critiques growth and value investing as backward-looking, noting that the MSCI Growth Index relies on historical metrics while value strategies depend on uncertain future cash flows. Kodak’s collapse exemplifies how innovation can render even ‘value’ investments obsolete. This mismatch underscores the need for frameworks capturing structural shifts like AI and electrification.

UBS now focuses on three transformative areas: AI, electrification, and longevity. The piece warns that thematic teams often chase narratives rather than long-term opportunities. By prioritizing these shifts, investors can align portfolios with decades-long growth drivers rather than outdated categorizations.

The article concludes that valuations must anchor decisions, but with a forward-looking lens. Structural innovation, not historical performance, will define future returns. This calls for a fundamental rethink of capital allocation frameworks in asset management.