Key Takeaways

  • Factor performance continued its trends from December into January, with the value and quality factors performing best, and growth and size (small-cap stocks) performing worst.
  • The outperformance of value relative to growth has reached levels not seen since early 2017, the last time the Fed was raising rates.
  • Our dynamically weighted factor portfolio underperformed the S&P 500 by 0.2% in January. Since the start of 2020, this strategy has outperformed the S&P 500 by a total of 4.1%.
  • After the latest rebalance, the dynamic factor portfolio is now overweight quality and low-volatility while being underweight size (small-cap) and growth.

Factor Performance Review

Factor dynamics that existed in December continued into January, as December’s winners continued to outperform, while underperformers during December continued to struggle. Of the six factors we track (growth, quality, low-volatility, momentum, size and value) - value and quality outperformed their benchmarks by the most over the past month (see gray bars in Fig. 1), with value outperforming by 1.0% and quality turning in 0.6% of relative outperformance. The size factor (small-caps over large-caps) performed the worst in January, as it underperformed by 4.5%.

Over th...

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