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 March 1995 - August 2020.

Market Themes

    • U.S. Fed policy: In a speech toward the end of the month, Federal Reserve Chair Jerome Powell said the U.S. central bank will aim for inflation above its previous 2% target following periods where inflation runs below that level and would shift toward broad-based labor market goals, “particularly for many in low- and moderate-income communities.” 1
    • COVID-19: The virus continued its spread globally, with notable surges in Spain, France, and Germany.2 In the U.S., Congress failed to reach an agreement on the next round of economic stimulus. However, there was optimism around vaccine development.3
  • U.S.-China tensions: Activity between the world’s two largest economies was in focus. The U.S. executive orders against popular Chinese apps raised fears of an escalation on the trade front 4, as officials conducted talks to discuss progress of the “phase one” trade deal 5. There were also sanctions imposed by both countries on the other surrounding the Hong Kong security legislation passed in late June.6

Factor Performance Summary

  • Generally, global Equity markets were up in August against the backdrop of investor optimism around a potential COVID-19 vaccine in the coming months and a better-than-expected second quarter earnings season 7.
    • The U.S. equity market in particular outperformed, with some major U.S. equity benchmarks reaching record highs in August. The Local Equity factor posted 1.13% returns for the month. 
  • The Interest Rates factor ended down. The factor fell notably in mid August, likely due to a variety of factors, including stronger-than-expected inflation data in the U.S.8, a record U.S. bond issuance on August 12th 9, and investors moving away from perceived safe-haven assets on the back of positive vaccine developments and hopes of a new coronavirus relief bill in the U.S. 10
  • Fears of rising inflation 11 and suppressed interest rates for the foreseeable future (see U.S. Fed policy bullet above) put negative pressure on the USD in August, which boosted the Foreign Currency factor in the USD version of the factor lens. The higher inflation expectations supported the Local Inflation factor (read a primer on the Local Inflation factor here). 
  • Commodity sectors were positive across the board, at least partly assisted by a weaker USD. The stand out performer in August was energy, heavily supported by strong performance from natural gas (up over 40%12).
  • While the three asset classes (stocks, debt, and currencies) that make up the Emerging Markets factor were positive in August, they underperformed their developed market counterparts on a risk-adjusted basis, hence the -1.93% return for the residualized factor. 
  • In terms of the macro style factors in the Two Sigma Factor Lens:
    • U.S. equity market volatility was slightly higher in August (the VIX went from 24.46 to 26.4113), which contributed to the poor performance of the Equity Short Volatility factor.
  • In terms of the equity style factors in the Two Sigma Factor Lens:
    • The Low Risk factor struggled in August as traditional defensive names remained out of favor during the recovery. The factor saw detractions from both its Beta and Residual Volatility components.
    • Value started the month off on a good foot, recording 2.46% returns through August 12th. However, a mid-month reversal led to the factor ending the month down -2.89%. All four components detracted, led by Dividend Yield.
    • The Crowding factor was down -0.32%, which was a large move considering the relatively low volatility of the factor14. Stocks that were heavily shorted by the investment community generally outperformed their less-shorted counterparts.


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1 Source:

2 Source:

3 Examples include China’s CanSino Biologics, which was reportedly in talks with several countries to secure emergency approval for their vaccine before completion of Phase 3 trials, and Moderna’s deal with the Trump administration to supply 100 million doses of their experimental vaccine. Sources: and

4 Source:

5 Source:

6 Source:

7 Source:

8 Source:

9 Sources: and

10 Source:

11 Source:

12 Source: Commodity Systems Inc.

13 Source:

14 The Crowding factor has realized < 3% annual volatility since January 1, 2008.

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. Any statements regarding planned or future development efforts for our existing or new products or services are not intended to be a promise or guarantee of future availability of products, services, or features.  Such statements merely reflect our current plans.  They are not intended to indicate when or how particular features will be offered or at what price.  These planned or future development efforts may change without notice. 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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