The RP-PCA factors and stock return predictability: An aligned approach

•We creat an novel predictive factor, i.e., the aligned RP-PCA index.•The aligned RP-PCA index appears to outperform the original RP-PCA factors in various in-sample and out-of-sample diagnostic tests.•The aligned RP-PCA index can generate adequately profits in an active market-timing trading strategy in excess of the historical mean forecast strategy.•The economic source of the forecasting power for the aligned RP-PCA index predominantly comes from the future cash flow channel.