Exhibit 1: Two Sigma Factor Lens Performance in August
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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 - August 2025
Value and Quality: Both factors represent global market-neutral equity portfolios within the Two Sigma Factor Lens. Value maintains long positions in undervalued stocks relative to intrinsic value, while shorting overvalued ones. Quality goes long higher quality companies, while shorting lower quality ones.
Value derived its strongest performance from U.S. exposure, while the U.S. was the largest detractor for Quality. This divergence occurred despite both factors maintaining net long positions to the U.S., underscoring the importance of stock selection within countries, sectors, or other categories.
The financial sector was the primary performance driver for Value and the largest detractor for Quality. Value maintained a meaningful net long position in financials during August, while Quality held a significant short position. This opposing exposure represents a consistent historical pattern rather than an anomaly. This is illustrated in Exhibit 2, spanning the period from 1998 to present.
Exhibit 2: Net Financials Sector Positioning for Venn’s Value and Quality Factors
Source: Venn by Two Sigma. Period from 8/7/1998–8/31/2025.
Foreign Currency: This factor continued its exceptional 2025 performance, trending toward a potentially record-breaking year. For the USD-based of our factor lens, it captures G10 currency strength relative to the USD, adjusted to decorrelate with Venn's Equity, Interest Rates, Credit, and Commodities factors.
Recent six-month rolling periods rank among the highest returns in this factor's history (Exhibit 3), suggesting significant contribution to return for investors with exposure. Increased positive returns coincided with the rapid depreciation of the USD beginning in late February 2025. This was when the new U.S. administration began ramping up tariff policy action.
Exhibit 3: Rolling 6-Month Return of Venn’s Foreign Currency Factor
Source: Venn by Two Sigma.
Fixed Income Carry: This factor maintains long positions in high-yielding 10-year sovereign bond futures and short positions in low-yielding ones, measured by term spreads. It captures carry premiums beyond movements correlated with our Interest Rates factor.
August performance faced headwinds primarily from two positions: a long 10-year U.K. Gilt position and a short 10-year U.S. Treasury position. The Gilt suffered as yields rose sharply amid investor concerns regarding U.K. fiscal conditions.1 Conversely, the Treasury short position detracted from performance as yields declined substantially due to cooling labor markets and increased rate cut expectations for the U.S. Fed September meeting.
Exhibit 4: Yield of 10-Yr Gilt and 10-Year Treasury Bonds
Source: Venn by Two Sigma, EDI.
References
1https://www.reuters.com/world/uk/uk-borrowing-costs-hit-highest-since-1998-pound-slides-fiscal-worries-2025-09-02/
Exposure to risk factors is not a guarantee of increased performance or decreased risk.
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.
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