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 - June 2020.

Markets and Factor Summary

Market Themes

  • COVID fears intensified in the latter part of the month. Despite mostly flattening curves in Europe and East Asia, there was a pick up in COVID cases in southern and western states in the U.S.1
  • U.S.-China tensions increased as China enacted a new national security law in Hong Kong. This resulted in the U.S. implementing sanctions on certain Communist Party officials. Other countries took action too, such as the U.K. paving the way for millions of Hong Kongers to apply for British citizenship.2

Factor Performance Summary

  • The global Equity market continued its rally despite the rising COVID cases in the U.S. and increased U.S.-China tensions.
    • The Local Equity factor in the USD version of the Two Sigma Factor Lens suffered, as the U.S. equity market lagged those in Europe and Asia, at least partly due to the mounting COVID cases in certain U.S. states.
    • Emerging Markets by and large fared better than their developed market counterparts, with the MSCI Emerging Markets Index posting 7.35% returns for the month. Emerging market debt and currencies also recorded gains.
  • The Interest Rates factor ended the month in positive territory.
    • Global government bond yields rose early in the month, then reversed course and dropped for the rest of the month. This reversal erased early losses in the Interest Rates factor, which is constructed using a 7-10 year global government bond index.3 Bond prices rise as yields fall.

Interested in your portfolio's exposures to these factors?

  • The Commodities factor was slightly positive in June.
    • The underlying index used to construct the factor, the Bloomberg Commodity Index, was up 2.28% for the month, seemingly due in part to oil prices rebounding as economic reopenings largely continued. Other major commodities, such as gold, were also positive. However, we think that most of those index gains could be attributed to the Equity and Interest Rates factors, resulting in a smaller profit for the residualized Commodities factor in the Two Sigma Factor Lens.
  • In the USD version of the Two Sigma Factor Lens, the Local Inflation factor, calculated using the return difference between U.S. inflation-protected bonds and Treasuries and then residualizing to the core macro factors, delivered 0.73% returns in June.
    • Inflation breakevens, which represent inflation expectations, rose, benefiting the factor.4
  • In terms of the equity style factors in the Two Sigma Factor Lens, there was a reversal around June 8th that affected all five factors:  
    • Negative to positive reversal:
      • Momentum was down -11.45% through June 8th, but then posted a very strong recovery to end the month up 1.74%. Tech names that generally exhibited positive Momentum exposure continued powering the rising equity market.
      • The Quality factor posted -3.87% returns through June 8th. Losses came from the factor’s Leverage, Earnings Variability, and Profitability components. It gained for the rest of June, but did not manage to escape negative territory, ending the month down -2.21%.
      • Low Risk struggled early on with -5.60% returns through June 8th. The factor’s subsequent recovery was not very strong, landing Low Risk with -3.24% returns for the month.
    • Positive to negative reversal:
      • The Small Cap factor was up 2.56% through June 8th. It then fell for the balance of the month, but did not manage to fully erase its early gains, ending June up 0.91%.
      • Value did well, up 7.32% through June 8th. It then sold off over the next 3 weeks, ending June down -1.29%. Value is the worst performing equity style factor this year, down -26.41% YTD through the end of June.
    • In terms of notable macro style factors in the Two Sigma Factor Lens:
      • The Equity Short Volatility factor was negative in June, as the VIX increased nearly 3 points for the overall month.5
        • There was a notable VIX spike on June 11th, which corresponded to a meaningful pullback in global equity markets (the Equity factor returned -4.59% on that day).
        • The increase in U.S. equity market volatility during June is particularly notable given the general rally in equities over the month. The VIX index and the Equity factor have a long-term correlation of -70%.6
      • The Trend Following factor suffered with losses in all four asset classes. The most notable losers were short positioning in commodities and equities, which detracted as both asset classes generally outperformed in June.



Source: Financial Times article “Coronavirus: US states in the west and deep South see rising rates of new cases — as it happened” on June 9, 2020.

2 Source: NPR article “As China Imposes New Hong Kong Law, U.S. And Allies Take Steps To Retaliate” on July 2, 2020.

3 For more details on the Interest Rates factor construction, see https://help.venn.twosigma.com/en/articles/1392786-two-sigma-factor-lens-faq

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

5 Source: http://www.cboe.com/vix

6 Source: Venn by Two Sigma as of July 7, 2020. Time period: August 3, 1999 - June 30, 2020.

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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