The end of 2025 is an ideal time to examine what truly worked on the market—and, more importantly, why, as the interpretation of individual metrics can be misleading. This analysis extends beyond typical sector performance reports, focusing on investment indicators and their practical implementation — with the option to explore them across individual sectors as well.
Factor-based data from the S&P 500 highlights one key insight: what looks best on paper is not necessarily what works best in a real-world portfolio.
Methodology
In this analysis, we evaluate 953 investment “factors.” In our framework, these factors represent simple model strategies, each holding 20 stocks selected from the S&P 500 universe.
Stocks are chosen based on the methodology of individual indicators (for example, trading volume over a given time period). Portfolios are rebalanced monthly, and we track several performance metrics, the most important of which are:
- CAGR (Compounded Annual Growth Rate)
For a one-year period, this effectively represents the growth rate achieved in 2025. - Sharpe Ratio
Measures how much excess return an investor earns per unit of risk (volatility). - Turnover
Shows how much the composition of the portfolio changes each month in percentage terms.
What Performed Best in 2025
Best Investment Indicator by Sharpe Ratio
When evaluating model strategies through the lens of the Sharpe ratio, fast momentum strategies clearly stand out. These strategies reacted quickly to market changes and delivered excellent risk-adjusted results in 2025.
However, this performance came at a significant cost. These strategies replaced nearly the entire portfolio every month, with turnover typically ranging between 80–95%, implying:
- a high number of trades,
- significant transaction costs,
- and increased operational complexity.
Momentum strategies, therefore, looked outstanding in performance tables—but in practice, they were primarily suitable for institutional investors with advanced execution capabilities.
Best Investment Indicator by CAGR
When we shift focus to actual money earned, the picture changes. The highest cumulative returns (CAGR) in 2025 were achieved by trend-following strategies, which also exhibited minimal portfolio turnover.
These strategies were not aggressive and placed relatively low demands on:
- time commitment,
- implementation costs,
- and tax efficiency.
For completeness, we also examined the strategy with the lowest volatility. SUVCoef66 demonstrated significant capital inefficiency. Despite a moderate volatility of 13.55%, the 5.34% return failed to provide an adequate risk premium. Furthermore, the high turnover rate (55.91%) suggests significant transaction costs.
| Indicator | Style | Sharpe | Volatility | CAGR (1Y) | Turnover |
|---|---|---|---|---|---|
| Smooth22VolumeWMA504 (1Y) | Trend | 1.56 | 30.09% | ✔ +55.66% | 2.73% |
| Mean5 (1Y) | Momentum | ✔ 1.95 | 17.99% | +42.43% | 91.82% |
| SUVCoef66 (1Y) | Momentum | 0.30 | ✔ 13.55% | +5.34% | 55.91% |
| S&P 500 (Index) | Index | 0.70 | 19.25% | +14.61% | N/A |
What This Means for the Investor
The year 2025 delivered a very clear lesson:
- Best Investment Indicator by Sharpe Ratio in 2025 (1.95) achieved 3x higher return than the S&P 500 at similar volatility. However, due to its extremely high portfolio turnover, it may be highly inefficient in real-world implementation.
- Best Investment Indicator by CAGR in 2025 (+55.66%) exhibited one of the lowest turnover levels, meaning it achieved superior performance with almost no portfolio changes—essentially the ideal outcome for most investors. (That is, if an investor can withstand the 30% downturn).
Conclusion
The results clearly show that conclusions vary significantly depending on the metric used. A one-year period is also a very short evaluation window, and longer time horizons should always be considered.
Performance can further differ across indicators, investment universes, and portfolio sizes. All of these parameters can be explored freely in our application.
And what’s more! Anyone who submits the most interesting 2025 insight from a factor/indicator-based analysis will receive a full year of free access to the Indicator Investing application.
December 27, 2025, Jiří Fuchs, CCFR/Analytical Platform
This article does not constitute investment advice. It is based solely on historical data. Past performance of individual indicators does not guarantee similar behavior in the future.