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 - July 2021.


Market Themes & Factor Performance Summary

  • Global Equity markets posted relatively average, positive performance in July. This was the sixth straight positive-returning month for the Equity factor. A slew of positive earnings seemed to outweigh concerns over the Delta virus variant and the possibility of central banks tightening policy.
    • The Local Equity factor in the USD version of the Two Sigma Factor Lens ended up for the month, as the U.S. equity market outperformed the rest of the world on both risk-adjusted and absolute bases.
    • On the other hand, Emerging Markets underperformed the rest of the world. The Emerging Markets factor was the worst performing factor in July, delivering its worst return since March 2020 when the factor suffered a -7.48% loss. The poor performance was due almost entirely to the factor’s equity component (although EM currencies were down slightly). Emerging equity markets suffered an approximately -2.5% loss in the last week of the month due at least in part to the China regulatory focus on several sectors, including private education, technology, and property.1
  • Global sovereign bonds ended July higher with notable gains in the first three weeks of the month, boosting the Interest Rates factor. Some strategists suspect that the decline in government bond yields (and higher bond prices) were mostly a result of technical factors like momentum and positioning.2
  • The Local Inflation factor in the USD version of the factor lens delivered positive performance in July, supported by rising inflation expectations (10-year breakevens ended July at 2.40, increasing from 2.32 at the end of June).3 The factor represents the return of an inflation hedge and is residualized to the four core macro factors.4
  • Two macro style factors exhibited notably poor performance:
    • The Foreign Exchange Carry factor, which is residualized against Equity, fell in July. Relatively high-yielding currencies, such as AUD, CAD, NOK, NZD, and SEK, generally underperformed lower-yielding currencies, such as CHF and JPY.
    • Negative trend performance in fixed income, currency, and equity markets contributed to the Trend Following factor’s loss in July. Fixed income Trend Following was the worst performer, as global sovereign bonds generally reversed their six month negative trend in July (see the Interest Rates bullet).
  • Many equity styles posted notable (and mostly positive) performance compared to their long-term histories:
    • The Low Risk factor was the highest-returning factor in the lens in July, supported by both of its components, although Residual Volatility meaningfully outperformed Beta. There appeared to be a rotation away from cyclical sectors, like energy and financials, and towards more defensive sectors, like healthcare and utilities. The factor has still not fully recovered from its sharp drawdown experienced during the depths of the COVID market crisis in the first quarter of 2020.
    • Quality was a top performer last month, with all five of its components (except Earnings Quality) ending in positive territory. Earnings Variability was the best performing component.
    • Crowding was another winning factor, delivering 1.54% gains and erasing its losses from earlier in the year. Its YTD return through the end of July was 1.46%.
    • The Small Cap factor was the only equity style factor to lose last month. Large cap companies outperformed their small cap counterparts. In the U.S., for example, the Russell 2000 Index underperformed the Russell 1000 Index by around 5.7%. And globally the MSCI World Small Cap Index underperformed the MSCI World Large Cap Index by around 2.6%.

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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.


1Source: https://www.bloomberg.com/news/articles/2021-07-26/china-crackdown-rocks-investors-everybody-s-in-the-crosshairs 

2Source: https://www.cnbc.com/2021/07/16/the-mystifying-bond-market-behavior-could-last-all-summer.html 

3Source: https://fred.stlouisfed.org/series/T10YIE

4Read this primer for more information on the Local Inflation factor.


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