Venn by Two Sigma March 2024 Factor Performance Report: Three Equity Styles with Meaningful Performance in March

· By Christopher Carrano

There were many market developments in March worth noting. For example, the Bank of Japan ended its yield-curve control policy after eight years, including much of its asset purchasing.1 Additionally, markets continued to weaken their US rate cut expectations, with even a June cut falling below 50% probability at one point (though technically this happened on April 1st when ISM manufacturing was reported).2 

It would be intuitive to link these events to factors such as Carry, Interest Rates, or perhaps Foreign Currency.  However, the most notable March performance within the Two Sigma Factor Lens came from beta neutral equity styles. More specifically, Value and Crowding experienced meaningfully positive performance relative to their history, and Quality, meaningfully negative. 

Exhibit 1: Two Sigma Factor Lens Performance in March

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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 Oct 1997 - March 2024

Value: Every global sector was positive in March (Exhibit 2), an impressive feat that shows the broadness of the equity market rally over the month. A few sectors stood out: Energy, Materials, Utilities, and Financials, all of which were net long in our Value factor for the month. In fact, Value has been net long in all four of these sectors since February of 2018, with its position in Energy increasing meaningfully over the last few years.

Exhibit 2: Global Sector Performance in March

Source: Venn by Two Sigma

Crowding: This factor is intended to capture short exposure to US stocks that are widely shorted by the investment community. At first glance, it may be odd to see positive returns in this factor with such a broad-based market rally, but Crowding has a long position as well. Notably, the long portfolio was up 4.50% and outperformed our Equity factor in March. The short portfolio (which is short high short interest stocks) underperformed meaningfully amidst the broad equity rally.

Exhibit 3: Performance of Long and Short Crowding Portfolios in March

Quality: “Junk” stocks rallied in March, leading to negative returns for our Quality factor. More specifically, this factor looks at both profitability and leverage when assessing which stocks are considered to be of high quality. When viewed as its own portfolio, the leverage component struggled in March, implying that stocks with high amounts of leverage outperformed those with low amounts. 

Exhibit 3: Performance of Quality Inputs in March

Source: Venn by Two Sigma


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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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