Exhibit 1: April Performance of the Two Sigma Factor Lens
©2025 Two Sigma Investments, LP. This image is for informational purposes only. See https://www.venn.twosigma.com/blog-disclaimer for more disclaimers and disclosures. Source: Venn by Two Sigma. The median and percentile columns measure the performance of each factor in the Two Sigma Factor Lens relative to the entire history of the factor in USD, using monthly data for the period August 1998 - April 2025.
Core Macro Factors
Equity: This factor initially plunged when the U.S. announced higher-than-expected tariffs, but ultimately recovered as tariff plans generally softened. While equities felt like a rollercoaster in April, we found the final monthly performance of our Equity factor to be within a common range (Exhibit 1).
Interest Rates: Global rates fell in April, especially in countries outside of North America. This boosted the monthly performance of our Interest Rates factor to the 90th percentile of historical monthly returns (Exhibit 1), reflecting investors’ flight to safety across global markets.1
Credit and Commodities: Unlike Equity, these factors did not significantly recover after their initial drawdown, finishing the month deeply in the red. This failure to recover may suggest they are more fundamentally connected with the impact of tariffs.
Both Credit and Commodities factors are designed to be currency-hedged and uncorrelated with Equity and Interest Rates factors via our residualization process.
Exhibit 2: April Performance of Credit and Commodities Factors
Source: Venn by Two Sigma
Secondary Core Macro Factors
Local Equity and Local Inflation: Local Equity factor performance was positive in April, while Local Inflation was negative – both results being somewhat counterintuitive. The former implies that U.S. investors were rewarded for having U.S.-specific equity market risk, while the latter suggests inflation hedges in treasury markets detracted from returns (an absence of higher-than-expected inflation).
One might expect the opposite: tariffs may slow U.S.-specific economic growth (negative Local Equity) and cause higher inflation (positive Local Inflation). This pattern was indeed evident in these factors’ performance since U.S. inauguration day, but not in April.
Local Equity is designed to be uncorrelated with our Equity factor, while Local Inflation is designed to be uncorrelated with our Equity, Interest Rates, Credit and Commodities factors. It may be that the abruptness of tariff-related volatility was instead efficiently captured in these other higher tier factors, leading to the counterintuitive results.
Exhibit 3: April Performance of Local Equity and Local Inflation Factors
Emerging Markets: This factor plummeted with markets at the beginning of the month, and similar to Credit and Commodities, never rallied back to previous highs. This may be partially explained by the softened tariff language that excluded China, which constitutes a significant portion of market-cap weighted emerging market exposure.
For example, the iShares MSCI Emerging Market ETF (EEM) rose 0.50% in April, while the iShares MSCI Emerging Markets ex China ETF (EMXC) gained 3.00%. As shown in Exhibit 4, both initially declined together when high tariffs were announced, but began to diverge as softer language excluded China, relatively benefitting the ex-China version.
Our Emerging Markets factor is currency-hedged, and decorrelated with Equity, Interest Rates, Credit, and Commodities factors.
Exhibit 4: April Performance Emerging Market Equities With and Without China
Foreign Currency: This factor had the best month in its history (Exhibit 1), demonstrating the drop in the USD’s relative value versus the G10. Our Foreign Currency factor aims to capture currency movements above and beyond movements of our Equity, Interest Rates, Credit, and Commodities factors – a particularly relevant construction when many market participants today view the USD as a proxy for other factors.
For investors with Foreign Currency factor exposure, current market dynamics can create significant tailwinds or headwinds, and should be considered carefully across an entire portfolio. For example, for a U.S.-based investor, the iShares MSCI EAFE ETF (EFA) returned 4.02% in April, while its hedged version returned -0.55%.
Remember, the hedged version neutralizes currency movements to capture only the underlying equity return. It is the unhedged version that is effectively making a short USD bet alongside the underlying equity exposure (and even bets on other factors such as Interest Rates), explaining its superior performance as the USD weakened.
Exhibit 5: April Performance of Hedged and Unhedged EAFE ETFs
Macro Styles
April saw significant movements across all four of Venn’s Macro Style factors, which capture systematic return-seeking strategies employed by institutional investors.
Fixed Income and Foreign Exchange Carry: Our Fixed Income Carry factor goes long or short 10-year bond futures based on a country's term spread. Short positions in markets like Canada, where the 10-year yield rose over 12 bps, contributed meaningfully to positive performance.2
Foreign Exchange Carry determines long or short currency positioning based on the absolute cash yield. A long position in the USD–a high yielding currency–was a meaningful headwind for our FX Carry factor in April.
Our FI Carry factor is decorrelated with our Interest Rates factor, while FX Carry is decorrelated with our Equity Factor.
Exhibit 6: April Performance of Carry Factors
Equity Short Volatility: With its 3.57% decline, this factor reflected the extraordinary volatility that accompanied tariff announcements. Importantly, Venn’s construction captures volatility beyond what’s embedded in our Equity factor – underscoring the exceptional volatility overflow due to tariffs.
Trend Following: This factor relies on consistent and robust trends across asset classes to generate positive performance. All four components—equity, commodity, currency, and fixed income trends—generated negative returns as tariff headlines disrupted established market patterns. These broad-based struggles illustrate how thoroughly the tariff shock upended previous market dynamics.
Exhibit 7: April Performance of Equity Short Volatility and Trend Following Factors
Equity Styles
Among the best and worst performing of our long/short Equity Styles were Momentum and Value.
Momentum: One might find it unintuitive that Momentum performed well in April when every component of our Trend Following factor, including Equity Trend Following, underperformed. In short, Momentum’s positive return indicates that stocks that had been outperforming other stocks over the last year continued to do so. Equity Trend following, by contrast, focuses on trends of the equity asset class as a whole, going long or short various index futures. We have a piece dedicated to their differences, as this is a common question we receive.
In the current environment, positive Momentum performance means that tariff-related volatility maintained already existing relative performance trends within equities. So while the performance trend of the equity asset class broke down amid tariff announcements, the trends in relative stock performance remained intact – interesting!
Value: Underperformance of our Value factor indicates that more expensive companies relative to their intrinsic value outperformed cheaper ones. This was especially pronounced within the energy sector, where long positions in large oil companies were disproportionate negative contributors in April.
Exhibit 8: April Performance of Momentum and Value Factors
1 https://tradingeconomics.com/bonds
2 https://www.marketwatch.com/investing/bond/tmbmkca-10y?countrycode=bx
References to the Two Sigma Factor Lens and other Venn methodologies are qualified in their entirety by the applicable documentation on Venn.
This article is not an endorsement by Two Sigma Investor Solutions, LP or any of its affiliates (collectively, “Two Sigma”) of the topics discussed. The views expressed above reflect those of the authors and are not necessarily the views of Two Sigma. This article (i) is only for informational and educational purposes, (ii) is not intended to provide, and should not be relied upon, for investment, accounting, legal or tax advice, and (iii) is not a recommendation as to any portfolio, allocation, strategy or investment. This article is not an offer to sell or the solicitation of an offer to buy any securities or other instruments. This article is current as of the date of issuance (or any earlier date as referenced herein) and is subject to change without notice. The analytics or other services available on Venn change frequently and the content of this article should be expected to become outdated and less accurate over time. Two Sigma has no obligation to update the article nor does Two Sigma make any express or implied warranties or representations as to its completeness or accuracy. This material uses some trademarks owned by entities other than Two Sigma purely for identification and comment as fair nominative use. That use does not imply any association with or endorsement of the other company by Two Sigma, or vice versa. See the end of the document for other important disclaimers and disclosures. Click here for other important disclaimers and disclosures.