Factor Investing

Does factor investing matter? While it is easy to see that cyclicals are leading US equity returns this year, a contextual analysis points to a more nuanced explanation for the positive returns. YTD, the S&P 500 is up 2.15% (price return) led by Technology +8.48% Energy, +7.75% and Consumer Discretionary +6.37%. However, factor analysis suggests that Growth +5.68% and Momentum +1.88% are leading stocks higher as investors favor stocks who might benefit form accelerating GDP growth. In comparison, Value -0.55% and Low Volatility +0.28% are noticeably underperforming. Net, if investors were paying attention to factors, they may have been able to get ahead of the recent run in US stocks as factors, more than sectors, explain price behavior. Recently, we discussed how the S&P 500 may not be overvalued and that valuations may have further room to expand if future earnings growth surprise on the upside.

Submitted May 23, 2018 at 11:29AM by QuantalyticsResearch https://ift.tt/2s5MRtj