Separate exposure to systematic factors from security selection.

Family Office Private Wealth Journal · Editorial research desk · 2 November 2026

Companion to Common risk factors in the returns on stocks and bonds by Eugene F. Fama; Kenneth R. French.

Decision in practice

Two external managers claim independent skill, yet their holdings favor similar small, inexpensive companies.

Committee assignment

Estimate common factor exposures on comparable dates, then inspect holdings for confirmation. Compare combined exposures with lower-cost implementations.

Record and decision rule

Review residual returns net of fees. Reassess diversification credit if both managers lose under the same factor shock.

Illustrative application by the editorial desk. The source authors did not evaluate or endorse this procedure.