In the factor world of investing, Low Volatility and Quality have been commonly referred to as defensive factors. The following is an examination of the performance of the S&P 500 Quality Index and the S&P 500 Low Volatility Index compared to the S&P 500 during the last 3 equity bear markets. The graphs and data…
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Sectors and factors are different ways of viewing the world, but they are not mutually exclusive. We find an example of such a close, symbiotic relationship between the technology sector and the quality factor. Exhibit 1 shows that the S&P 500 Information Technology index has a strong tilt towards quality, while the biggest overweight in…
The S&P 500® Quality, Value & Momentum Multi-Factor Index is designed to measure the performance of stocks having the highest combination of quality, value, and momentum (QVM). It takes a “bottom-up” approach of scoring each stock on its individual factor attributes and selecting stocks that jointly score highest across all the factors [1]. In light…
In January 2019, we highlighted several indices designed to reduce the impact of large equity market drawdowns. Here we analyze the same suite of indices divided across three broad categories: defensive equity, multi-asset, and volatility. This analysis simply reviews performance since the S&P 500®’s high on Feb. 19, 2020, through the close on Friday, March…
In 2019, U.S. equities posted double digit gains, with the S&P 500® returning 31.49%—its best year since 2013 and second-best in a decade. This continued strong performance highlights the potential difficulty of beating the S&P 500.[1] The question then arises: what strategy (if any) outperformed the S&P 500 in 2019? Our latest S&P 500 Factor…
In our previous blog, we looked at the S&P Factor Indices’ ESG exposures, showing that factor exposures can have an influence on ESG scores. In this blog, we’ll discuss these scores at the sector level and see how implementing an ESG or carbon reduction strategy on poorer ESG-performing factor indices can help investors…
Quality is a factor that is frequently disputed and debated. Academics and practitioners often argue whether quality is a factor at all in the traditional risk factor framework. Often times, the debate stems from the fact that there is no one consistent, overarching definition or metric to measure quality. For example, some market participants see…
In a recent study published in the Financial Analysts Journal, Ang, Madhavan, and Sobczyk (2017)[1] highlighted that using regression-based factor loadings to measure managers’ factor exposures, even when conducted on a rolling basis, can be misleading due to excessively smoothed coefficients, given that active managers adjust their exposures dynamically. The authors argued that holdings-based attribution…
In our previous blog on multi-factor merits, we discussed the diversification benefits of combining equity factors. We highlighted how multi-factor indices may generate more stable excess returns, while avoiding the risks inherent in timing factors. But to achieve this, can market participants just throw lots of factors into a pot and hope for the best?…
It is undeniable that an individual investor would need considerable skill (or luck) to navigate optimally between the various single-factor equity strategies. If the goal is to outperform the benchmark, then simply choosing between a quality, value, momentum, or low volatility strategy may present the biggest risk. While they all have been shown to hold…
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