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 size (small-cap stocks) as the Russell 2000 outperformed the S&P 500 index by 2.1%. The growth factor also turned in a strong month, as it outperformed by 1.4%.
The worst factors over the past month were momentum, which underperformed the S&P 500 by 5.6%, and low-volatility, which lost 7.8% relative to the index. 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 continues to lead the pack, with 2.3% of relative outperformance. Looking out over the past 12 months, low-volatility and value continue to pace the group of factors, while growth continues to be a laggard. Over the past 12 months, value has outperformed the index by 8.0%, while growth has lagged by 7.9%.
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 February 10, 2023, the dynamic multi-factor strategy returned 30.6%. Over that same period, the S&P 500 has gained 26.6%, for 4.0% 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.
The dynamic strategy underperformed the S&P 500 in January by 1.8%. An overweight toward low-volatility and an underweight away from growth were the main causes for the dynamic factor strategy’s poor performance over the past month.
Dynamic Model: Factor Weights for February
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 remains overweight the value and low-volatility factors. It has underweights away from the growth and momentum factors.
Fig. 4 – Updated Factor Weights in Dynamic vs. Static Multi-Factor Portfolio
Source: Bloomberg, S&P, Russell, Fundstrat analysis.
