January 2023 Factor Commentary
- Of the six factors we track, value showed the best performance over the past month, outperforming the overall S&P 500 by 3.0%. The growth factor performed worst. For 2022, value and low-volatility were the best performing factors, while growth lagged.
- The dynamic factor portfolio outperformed the S&P 500 by 0.9% in December. Since the start of 2020, the dynamic factor strategy has outperformed the S&P 500 by 7.2%. Last year, the dynamic strategy contributed 1.4% of outperformance.
- After the latest rebalance, the dynamic factor portfolio is overweight the low-volatility and value factors, while being underweight size and growth.
Factor Performance Review
We track the performance of six factors (growth, quality, low-volatility, momentum, size, and value) as part of our multi-factor strategy. Over the past month, the best factor was value, which outperformed the S&P 500 index by 3.0%. The quality, low-volatility and momentum factors also all outperformed over the past month, outperforming the index by 1.8%, 1.7% and 1.5%, respectively.
After strong performance during November, the growth factor saw its performance reverse over the past month, as it was by far the worst-performing factor, underperforming the S&P 500 by 2.8% for the month. Performance for each of the six factors over the past month is shown as the dark blue bars in Fig. 1.
Fig. 1 – Recent Performance of Factors
Source: Bloomberg, S&P, Russell, Fundstrat analysis.
On a trailing 3-month basis (gray bars in Fig. 1), the value factor has shown the best relative performance, while growth has lagged. Looking out over the past 12 months, low-volatility and value have done best, while growth continues to be a laggard. Over the past 12 months, the growth factor has underperformed the S&P 500 by 11.6%.
Multi-Factor Portfolio Performance Review
We track a dynamic multi-factor portfolio that tilts weight toward the factors with the best recent performance, and away from the factors with the worst recent performance. Fig. 2 shows the cumulative performance of this dynamic multi-factor strategy relative to the S&P 500 since 1997.
Fig. 2 – Dynamic Multi-Factor Strategy Relative Performance
Source: Bloomberg, S&P, Russell, Fundstrat analysis.
From the start of 2020 through January 6, 2023, the dynamic multi-factor strategy returned 27.7%. Over that same period, the S&P 500 has gained 20.6%, for 7.2% of outperformance for the dynamic multi-factor strategy. Fig. 3 below shows the monthly performance of the dynamic strategy vs. the S&P 500 since the start of 2020.
Fig. 3 – Dynamic Strategy Recent Relative Performance
Source: Bloomberg, S&P, Russell, Fundstrat analysis.
After underperforming in November, the dynamic strategy rebounded in December, as it turned in 0.9% of return on top of the S&P 500. Overweighting the size and value factors, and an underweight away from growth contributed to the dynamic factor strategy’s positive performance during December. During 2022, the dynamic factor strategy outperformed the overall S&P 500 by 1.4%.
Dynamic Model: Factor Weights for January
Fig. 4 below indicates the latest weights assigned to each of the six factors in the dynamic multi-factor strategy. For the next month, the dynamic strategy is overweight the value and low-volatility factors while remaining underweight size (small-cap) and growth.
Fig. 4 – Updated Factor Weights in Dynamic vs. Static Multi-Factor Portfolio
Source: Bloomberg, S&P, Russell, Fundstrat analysis.
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