Source: Venn. 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 2021.
Market Themes & Factor Performance Summary
- The global Equity factor was the best performer in June. Equity markets generally rose over the month, despite a brief setback in mid-June when the U.S. Federal Reserve was more hawkish than expected.1
- Commodities were up for the month (even after residualization to the core macro factors), supported by rising energy prices.
- The Emerging Markets factor posted positive performance in June. While the underlying factor input (a combination of emerging market equity, debt, and currencies) was close to flat, the factor finished positive after residualizing to the core macro factors and a global currency basket.
- The Foreign Currency factor in the USD lens struggled, as the USD generally outperformed other G10 currencies. The USD benefitted from the mid-month Federal Reserve meeting, which, as mentioned earlier, was more hawkish than expected. The Fed signaled that interest rate increases could occur in 2023, a year sooner than previously thought.2 Higher U.S. rates make the USD a more attractive investment.
- Inflation hedges in the U.S. were generally not compensated in June, as evidenced by the negative return of the Local Inflation factor in the USD lens. The factor, as well as ten year inflation breakevens (a market gauge of inflation expectations), fell over the month, most notably after the mid-month Fed meeting.3
- Within macro styles, Trend Following was a notable negative performer, returning -1.34%, which is 20th percentile performance relative to its long-term history. Reversals in fixed income and currencies detracted from the factor’s performance, while following trends in commodities and equity markets helped.
- Within equity styles:
- The Value factor was challenged in June by the continued reflation trade unwind and the hawkish Fed meeting. The factor is still positive for the year (+8.29% YTD), but June was certainly a setback. All four components of the factor detracted.
- The Crowding factor suffered as well, although not to the same extent as Value. Stocks heavily shorted by the investment community outperformed stocks that weren’t as heavily shorted.
References to the Two Sigma Factor Lens and other Venn methodologies are qualified in their entirety by the applicable documentation on Venn.
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