Three rules. Reading a multi factor brochure for what it actually stacks, not for how many screens it names.
More screens reads as more rigour. The math reads it as a portfolio of bets, and the only thing that matters is whether the bets disagree with each other. Three checks before signing the cheque on a fund that markets a number of factors.
01
The first factor pair does the heaviest lifting if the two disagree.
Value and Momentum sit at minus 0.30 correlation. Cheap-and-ignored almost never overlaps with expensive-and-trending. Stacking the two moved Sharpe from 0.62 to 0.91 in the ledger, a 0.29 jump. Ask which two factors a multi factor fund is leaning on. If they are both pulling from the same defensive cohort or both pulling from the same growth cohort, you are paying for one bet through two doors.
02
Beyond three well chosen factors the marginal Sharpe gain disappears.
Each new factor screen shrinks the eligible universe. The intersection of value, momentum, quality, size and low-vol on a 200 stock parent is often fewer than 15 names and turns over hard every month. Turnover, transaction cost, and crowding tax keep climbing while the Sharpe stops moving. Five factors stacked is rarely a portfolio. It is a marketing line. The honest version is two or three factors with a clear logic for why each one is there.
03
Two positively correlated factors stacked is double counting one bet.
Quality and Low Volatility sit at plus 0.55 correlation. Both screens land on staples, FMCG, pharma, large defensives. Adding Low Vol on top of Quality does not diversify. It loads more weight on the same cohort. The portfolio gets less liquid, less diversified, more crowded, and the bear-market protection both factors offer arrives at the same time as it would have anyway from either one alone.
Closer
A portfolio is not a Boolean AND of every factor in the paper. It is a small basket of bets that actually disagree with each other. The brochure counts the screens. The math counts the correlations.