In this edition of the Venn Factor Performance Report, we highlight the impact that the Russia-Ukraine crisis has had on markets and the factors within the Two Sigma Factor Lens. Over the course of February, two thirds of the factors experienced movements in either the top or bottom quintiles of their monthly historical returns as a result of the events that unfolded.

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 - February 2022.


  • Global stocks continued their downward trend for a second month in a row, as Venn’s Equity factor returned -2.63% on the month, down -7.09% year-to-date. Hawkish monetary policy, rising inflation, and the Russian invasion of Ukraine gripped markets in February:
    • Global central banks were focused on taming inflation as the BoE raised interest rates for a second straight meeting, up to a half-percentage-point,1 while the Fed signaled an even faster potential rate-hiking path and reiterated their expectations to begin increasing rates in March2 as consumer prices increased 7.5% year-over-year, the highest reading since 1982.3
    • Meanwhile, geopolitical risks mounted. Russia officially recognized the Donetsk People's Republic and Luhansk People's Republic in Eastern Ukraine as independent states, and days later launched a full-scale invasion of the country, the largest in Europe since WWII. The US,4 UK,5 Switzerland,6 and the EU4 responded with increasingly stern sanctions over the last week of the month as the crisis intensified. 
  • The Interest Rates factor had another tough month in February, returning -0.93%, as global interest rates continued to move upward given the increasing probability of more and faster rate hikes from central banks:
    • US 10 year yields crossed over 2% for the first time since 2019,7 following the historic consumer price reading from January and St. Louis Fed president James Bullard’s comments. This led markets to price in a potential half-percentage-point interest rate increase in March.8
    • However, the Interest Rates factor recouped half of its intra-month losses, as geopolitical risks spiked in the back-half of the month, following escalating tensions caused by the Russian invasion of Ukraine, leading yields lower.9
  • Commodities continued to rally for a third straight month, with Venn’s Commodities factor up 4.61%. As a reminder, the Commodities factor is residualized against the Equity and Interest Rates factors as well as a global currency basket (Short USD, Long G10 FX ex-USD). This marked yet another near-record month for the factor as inflationary risks were further compounded by the Russia-Ukraine crisis: 
    • Oil prices continued to skyrocket, with Brent crude rising above $100 per barrel for the first time since 2014, as fear of more supply disruptions, in part due to sanctions on one of the world’s largest oil and gas exporters, weighed on markets.10
    • Gold, which carries a 14.25% weight in the Bloomberg Commodity Index, and other precious metals also jumped in February, while unnerved investors looked to safe haven assets.11 Wheat markets also saw huge gains as Russia is the world’s largest exporter of the commodity.12
  • The Credit factor was down -2.51% on the month, as rising inflation and risk-off sentiment drove credit spreads wider,13 while European High Yield was one of the worst performing bond market sectors–it was only trailed by Emerging Markets.14 While the Credit factor is also designed to be orthogonal and is residualized to the Equity and Interest Rates factors, after backing out their negative performance in February, the factor notably still performed poorly.
  • The Emerging Markets factor registered a 3rd-percentile move down, as it returned -4.06%, making it the worst performing factor in the lens in February. The last full week of the month was also one of the factor’s worst since the inception of the Two Sigma Factor Lens. All three components: Emerging Market Equity, Currency, and Bonds were down: 
    • In response to western sanctions on financial markets, Russian stocks went into freefall, forcing the central bank to halt short selling and close the stock market. At one point, the MOEX Russia Index was down nearly 50%.15 Meanwhile, the ruble cratered, initiating a bank run.16 Investors simultaneously dumped the country’s bonds as ratings agencies cut their sovereign debt to junk.17 
    • In addition to Russian markets, the three largest weights in the MSCI Emerging Markets Index: China (31.76% weight), Taiwan (16.15% weight), and India (12.37% weight),18 were each down -3.90%,19 -2.55%,20 and -4.00%21 respectively in February.
  • Foreign Currency was up a modest 1.92% as the factor’s residualization to Equity, Interest Rates, and Commodities completely offset each other.
  • Within macro style factors:
    • The Foreign Exchange Carry factor also delivered gains in February, reversing a multi-month downward trend, as interest rate differentials and residualization to the Equity factor both led to positive return attribution for the factor. Foreign Exchange Carry also saw its largest weekly return since the inception of the Two Sigma Factor Lens during the second week of the month. Short positions within EUR and SWE paid off as those currencies sold off along with rising tensions between nearby Russia and Ukraine.22 
    • Equity Short Volatility marched steadily higher for a third month in a row, largely driven by its residualization to the Equity factor.
  • Within equity style factors:
    • The Small Cap factor snapped its four month losing streak, registering a 90th percentile move, up 2.50%. The stocks of smaller capitalization companies were slightly up as they are generally less exposed to foreign business and consumers than larger capitalization companies, which fell along with rising geopolitical concerns.23
    • Crowding took a breather following two historic months of outperformance. The factor was up slightly through the first three weeks of the month and then precipitously declined following Russia’s invasion of Ukraine. Market participants have suggested that after assessing the scope of sanctions and the potential market impact they might have, investors reconsidered their existing hedges and shorts, sparking a wave of unwinds.24
    • Within the Quality factor, gains in the Earnings Quality and Investment Quality components were not strong enough to overcome losses in the Leverage, Profitability, and Earnings Variability components.
    • The Low Risk factor suffered losses in February, taking a pause from its post-COVID crisis recovery for the first time since September last year, as both the Beta and Residual Volatility components of the factor moved lower over the last week of the month.

Interested in your portfolio's exposures to these factors?

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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