Sector & Size Neutral Factors

Rank any exchange on a value or quality score and the top of the list fills up with the same kinds of company — one or two sectors, and usually the smaller names. That is the sector and the size talking, not the factor.

This page fits each raw score to sector membership and company size (log market cap) across the whole cross-section, then keeps only the residual — the part of the score those two things do not explain. A high neutral score means the listing scores well against companies like it, not merely that it is small or in a cheap sector.

• Stopping a screen from becoming one bet. A raw factor list is often a small-cap list wearing a factor label.
• Comparing like with like. A large bank and a small one score on different scales; neutralizing puts them on one.
• Measuring the bias itself. The sector-shift and size-shift columns say exactly how much of each raw score was sector and size.
• Checking a conviction. If a name only ranks well before neutralizing, what you liked was its cohort.

This re-expresses the same evidence — it adds no data and makes no claim about future returns. Removing sector and size does not make a factor predictive, and a residual ranking has its own habits: it can favour listings with unusual accounting or thin cohorts, where "unlike its peers" and "wrongly measured" look identical. Read it next to the raw score, never instead of it.