RESEARCH: FACTOR PERFORMANCE

FACTOR INVESTING IN MICRO & SMALL CAPS

  • Micro caps are commonly perceived as highly risky, but potentially also highly rewarding
  • Smalls caps generate more attractive risk-return ratios than micro caps on index level
  • Focusing on factors improves risk-adjusted returns across market cap segments

FACTOR OLYMPICS Q3 2018

  • Global factor performance in the first three quarters of 2018 is comparable to 2017
  • However, regional factor performance diverges, reflecting changes in monetary and trade policies
  • Low Volatility leads and Value lags

SHORT-TERM MOMENTUM IN EQUITY FACTORS

  • Short-term momentum persists in common equity factors
  • The persistence is strong in Value and Dividend Yield
  • However, these results conflict with short-term mean-reversion on equity index level

IMPACT OF SINGLE STOCKS ON FACTOR RETURNS

  • Factor portfolios are typically created by equal weighting stocks
  • The impact of single stocks is therefore reduced compared to market-cap weighted indices
  • The FAANG stocks impacted factors differently

FACTOR OLYMPICS 1H 2018

  • Factor performance in 1H 2018 is comparable to 2017
  • The Size factor has taken the lead, likely reflecting the threat of global trade wars
  • Value has generated the most negative returns across regions

FACTOR OLYMPICS Q1 2018

  • 2018 started negative for the majority of factors
  • Momentum, Quality and Growth showed the strongest performance
  • Low Volatility, Dividend Yield and Value generated negative returns

FACTOR INVESTING: GROSS TO NET RETURNS

  • Long-short multi-factor portfolios generate attractive returns before fees
  • Returns are much less attractive post fees charged historically
  • However, some fees in the long-short space are likely justified given higher complexity

FACTOR OLYMPICS 2017

  • 2017 was a positive year for most factors
  • Quality, Growth and Momentum showed the strongest performance
  • Value, Dividend Yield and Size generated negative returns

FACTOR-RETURNS: YEAR-END CALENDAR EFFECTS

  • Value & Size generate abnormally large positive returns in January, Momentum negative returns
  • Abnormal returns are limited to the last week of December and first week of January
  • Difficult to harvest these returns efficiently due to illiquidity of markets at these times

FACTOR OLYMPICS Q3 2017

  • 2017 is on track for a good year for factor exposure as most factors are positive
  • Quality, Growth, and Momentum are headed for the winners podium
  • Value is negative across regions, giving up all of last year’s gains

FACTORS: CORRELATION CHECK

  • Correlations between Quality and Growth factors are currently elevated
  • Value is more negatively correlated than usual to Quality, Growth and Low Volatility
  • Monitoring correlations is important for maximising diversification benefits

EQUITY FACTORS IN JAPAN

  • Japan has unique characteristics from an economic perspective
  • Factor performance in Japan mirrors global factor performance
  • Debt & demographics seem to matter less than underlying factor drivers

FACTOR OLYMPICS: 1H 2017

  • 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

MARKET & FACTOR VOLATILITY 

  • Factor volatility mirrors market volatility
  • Market volatility is higher than factor volatility
  • Momentum has a higher volatility than Value or Size

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