Factor investing is to portfolio construction what macronutrients are to the diet, and diversifying a portfolio to include various factors is as important as doing so with asset classes in a traditional, market-cap weighted portfolio. This is the upshot of a recent Morningstar interview with Ben Johnson, the firm’s director of global exchange-traded fund research.

Johnson (who credits the macronutrient analogy to factor expert Andrew Ang of BlackRock) discusses the philosophy behind an investor’s move to a multifactor portfolio which, for example, might focus on a factor such as market beta or value stocks. His review of the historical performance of different factor ETFs shows that, over a nearly 30-year period, many outperformed market-cap weighted global indices. He pointed out, however, that during that “very long stretch of time each of these factors has experienced its own unique cycles” including what he terms as “extended droughts” relative to the cap-weighted index. So, he argues, an investor’s ability to enjoy excess returns depends on their ability to “stick with that particular factor” through periods of lackluster performance.

Like with a traditional portfolio, Johnson advocates taking advantage of what is “the only free lunch in investing, which is diversification”. This, he says, is the idea behind investing in multifactor ETFs that bundle several factors together to minimize the underperformance risk of any one. He argues that this is a better strategy than an investor trying to accomplish the same goal by choosing various single-factor ETFs on their own. “I think it’s inefficient,” Johnson says, “and in all likelihood will wind up being quite costly.”