Goldman Sachs believes it is time for you to start understanding factor exposure. According to the bank’s quantitative equity analysts Robert D. Boroujerdi, Jessica Binder Graham, CFA, Deep Mehta and Ronny Scardino, “never has the need for fundamental investors to understand factor exposure has been at this acute.” According to the team’s research, after the recent rally, which has seen the S&P 500 rise by nearly a quarter from its lows, “windows to generate alpha are shortening, style rotation is becoming more violent and smart beta is a solution that has found a problem. Understanding systematic risk is increasingly not just about fundamentals but flows and positioning.”

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According to Goldman’s analysis, 2016 was a watershed year for the fundamental community in working to better understand their factor exposures and the nature of how systematic risk was more present in their portfolios than they believed. Understanding factors and how they influenced portfolio performance during the year, helped investors understand where the best return for the least risk was to be found. But there’s still plenty of work for investors to do on the topic of factor investing and as everything now looks expensive, it’s time to brush up on your factor knowledge.

Value was the best performing factor in 2016 (+900 bps market neutral) and worked throughout the year. However, 2015’s best performing styles Returns, Balance Sheet, Size and Volatility worked early in the year only to sharply reverse during “Factormageddon” (first quarter volatility spike) and continued to be weak the rest of the year as the duration/stagflation trade unwound and reflationary expectations came to the fore. These four factors had their worst performance since 2009 during 2016. Crunching the numbers further, Goldman finds that while value was the best performing strategy overall, some sub-factors performed better than others. For example, P/E as a strategy was flat while P/B and EV/DACF both posted double-digit returns. In ‘Growth’ performance was positive when looking at EPS returns (+6%) while negative for Sales (-7%).

Still, even though some factors performed significantly better than others during 2016, all factors saw an improvement in valuations. This now means that investors should be very careful where they invest today.

Indeed, according to the team at Goldman’s figures, almost all factors look expensive relative to their own history. Cheap P/E, Low Growth and Low Short Interest look the most stretched while High Vol, High EPS Growth and Perf. Leaders still appear cheap but are close to five-year mean historic valuations.