FACTOR OLYMPICS: 1H 2017

And the Winner is…

July 2017. Reading Time: 10 Minutes. Author: Nicolas Rabener.

SUMMARY

  • 2017 seems to be a good year for factor exposure as most factors are positive
  • Growth, Quality, and Low Volatility are headed for the winners podium
  • Value is negative across regions

INTRODUCTION

We present the performance of six well-known factors on an annual basis for the last 10 years and first half of 2017 for all developed markets in an easily-digestible format. It’s worth mentioning that not all factors have academic support, e.g. Quality and Growth lack track records of structural profitability.

Aside from showing the factor performance these charts highlight the significant factor rotation in terms of profitability from one year to the next. Factor investing is at it’s all-time high in terms of popularity according to Google Trends, but factor selection and factor timing are challenging subjects.

METHODOLOGY

Please see our Factor Guide for the calculations of the factor performance.

FACTOR OLYMPICS (LONG / SHORT): US

The chart below shows the factor performance for the last 10 years ranked top to bottom.

Factor Olympics (Long Short) - US
FACTOR OLYMPICS (LONG / SHORT): EUROPE
Factor Olympics (Long Short) - Europe
FACTOR OLYMPICS (LONG / SHORT): UK
Factor Olympics (Long Short) - UK
FACTOR OLYMPICS (LONG / SHORT): JAPAN
Factor Olympics (Long Short) - Japan
FACTOR OLYMPICS (LONG / SHORT): AUSTRALIA
Factor Olympics (Long Short) - Australia
FACTOR OLYMPICS (LONG / SHORT): HONG KONG
Factor Olympics (Long Short) - Hong Kong
FACTOR OLYMPICS (LONG / SHORT): SINGAPORE
Factor Olympics (Long Short) - Singapore

FACTOR MOMENTUM

It’s also worth investigating if we can observe factor momentum, i.e. we buy last year’s winner and compare it to the most negative factor for the same time period. Intuitively investors might expect mean-reversion to occur, however, the chart below shows that for most regions factor momentum worked as a strategy. Naturally it’s a very short observation period and statistically not very robust.

Factor Momentum - Cumulative Spread between Last Year's Winner and Loser

ABOUT THE AUTHOR

Nicolas Rabener is the Managing Director of FactorResearch, which provides quantitative solutions for factor investing. Previously he founded Jackdaw Capital, an award-winning quantitative investment manager focused on equity market neutral strategies. Before that Nicolas worked at GIC (Government of Singapore Investment Corporation) in London focused on real estate investments across the capital structure. He started his career working in investment banking at Citigroup in London and New York. Nicolas holds a Master of Finance from HHL Leipzig Graduate School of Management, is a CAIA charter holder, and enjoys endurance sports (100km Ultramarathon, Mont Blanc, Mount Kilimanjaro).

Connect with me on LinkedIn or Twitter.

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