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 - January 2021.

Market Themes & Factor Performance Summary

  • Despite recording gains of over 3.5% through January 25th due in part to optimism over vaccine rollout and further stimulus, the Equity factor ended the month in negative territory. It lost all of those gains and then some in the final week of the month, as broad fund degrossing (more on that below) helped push global equities lower.

  • There was a lot of action that occurred within the equity market, with the equity styles factors experiencing the most extreme performance in January.

  • We’ll start with a deep dive into Venn’s Crowding factor (learn more about the factor here). 
    • By now I’m sure we’ve all read countless articles on recent short squeezes in the market after prices for a number of out-of-favor stocks surged tremendously in January (one example being Gamestop).1
    • As our colleagues mentioned in their 2020 Street View “Unwinds, Diversification, and Constraints: The Mechanics of Financial Panics”, activity like short squeezes can force constrained players to unwind. In fact, data from prime brokers shows that equity funds did in fact deleverage portfolios by some of the largest amounts observed in these data sets.

    • Historically, maintaining exposure to the Crowding factor has delivered positive returns -- in fact, since the factor’s start date in January 2008, it has realized a 0.92 Sharpe ratio.2 That’s one of the highest risk-adjusted returns for the equity style factors on Venn over this time period.

    • In January, Crowding experienced its worst month since its inception in the Two Sigma Factor Lens, down 4.96% (a -5.7 standard deviation event).

  • In terms of the other equity style factors, we observed a general rotation in factor performance, where factors that performed poorly in 2020 rebounded in January, and those that outperformed in 2020 paused their rally or declined:

    • Small Cap stocks, which were unloved last year as smaller cap companies were more likely to be hit harder by the pandemic-induced economic slowdown, outperformed their larger-cap counterparts in January -- the Small Cap factor was up 3.43%. 
    • Value, another underperforming factor in 2020, rebounded in January to end the month up 1.00%. Value stocks were bid in January (especially in the first half of the month) as investors optimistically looked ahead to the end of the pandemic and a resulting upturn in economic activity. The rationale for this re-positioning could be that certain Value stocks in sectors like energy and financials stand to benefit from economic reopening (rising oil demand, increasing rates, etc.) more so than technology stocks (which are negative Value) that tend to operate independently of the economy or that benefit from a rise in the virtual economy.4
    • Momentum stocks took a breather and started the year off flat. 
    • Low Risk stocks underperformed their higher-risk counterparts, causing the factor to decline 2.98% for the month. Losses came predominantly from the factor’s Residual Volatility component, which was down 4.34% vs. the Beta component down 0.36%. 
    • Finally, Quality stocks suffered last month. Four of the factor’s five components5 were down, with Earnings Variability leading the underperformance. Earnings Quality was the only component with positive returns.
  • Other notable factor moves included:
    • The Interest Rates factor posted -0.46% returns with yields on sovereign debt increasing at least partly due to expectations for higher inflation.6 This sentiment also pushed the raw Local Inflation input (i.e., the unresidualized Local Inflation factor) 1.66% higher in January. 
    • The Commodities factor was supported by rising energy and grains prices.

    • The macro style Fixed Income Carry factor experienced 2.35% losses (9th percentile performance and a -1.4 standard deviation event7), as higher-yielding sovereign bonds underperformed. In particular, Canadian, U.S., and Australian 10 year bonds saw larger losses (i.e., greater yield increases) compared to European and Japanese 10 year bonds.

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.



The stock returned 1,625.1% in January, according to Venn.

2 Venn by Two Sigma as of February 1, 2021. Time period: January 1, 2008 - January 29, 2021.

3The standard deviation event was calculating using monthly return data for the Crowding factor from January 2008 to January 2021. The average monthly return was 0.19% with a standard deviation of 0.91%.

4 and 

The iShares Global Financials and Energy sector ETFs exhibited 0.47 and 1.21 exposures to Value respectively over the 6 month period ending January 29, 2021. The iShares Global Tech ETF exhibited a -0.53 Value exposure over the same period.

5 The Quality factor’s five components are Earnings Quality, Leverage, Profitability, Investment Quality, and Earnings Variability.

6 and

7The standard deviation event was calculating using monthly return data for the Fixed Income Carry factor from March 1995 to January 2021. The average monthly return was 0.20% with a standard deviation of 1.87%.


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.

This article may include discussion of investing in virtual currencies. You should be aware that virtual currencies can have unique characteristics from other securities, securities transactions and financial transactions. Virtual currencies prices may be volatile, they may be difficult to price and their liquidity may be dispersed. Virtual currencies may be subject to certain cybersecurity and technology risks. Various intermediaries in the virtual currency markets may be unregulated, and the general regulatory landscape for virtual currencies is uncertain. The identity of virtual currency market participants may be opaque, which may increase the risk of market manipulation and fraud. Fees involved in trading virtual currencies may vary.


Recent Posts