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 - November 2021.


Market Themes & Factor Performance Summary

  • The global Equity factor was up 1.55% MTD through November 25th, but fell dramatically on the Friday after the Thanksgiving holiday in the U.S. A new coronavirus strain called Omicron that was first reported in South Africa (and then in other parts of the world) had market participants concerned as to what this meant for the economic recovery and to what extent lockdowns and/or travel restrictions would be reinstated. 
  • The global Interest Rates factor was positive (i.e., rising bond prices / falling bond yields), mostly due to activity around the bookends of the month. At the start of the month (November 4th and 5th), global bonds benefitted, as the market was anticipating earlier-than-indicated rate hikes as we entered the month, and multiple central banks pushed back on those expectations.1 At the end of the month, bonds were further supported in the risk-off move due to Omicron fears.
  • Credit was challenged in November. The factor’s underlying input was negative, as U.S. investment grade and U.S. and European high yield bonds were all down. The factor’s residualization to the Equity and Interest Rates factors also detracted, specifically the Interest Rates component because of credit bonds’ positive correlation to global government bonds, which outperformed in November (as mentioned above).
  • The Commodities factor fell meaningfully, primarily due to movements in energy. Crude oil prices in particular dropped from around $83 per barrel to start the month to around $66 by the end of the month.2 Demand expectations fell on the Omicron news, while supply expectations rose, as countries like the U.S. announced they would be willing to release some of their reserves in order to combat higher inflation and energy prices.3
  • The Local Inflation factor in the USD version of the Two Sigma Factor Lens had a large positive month, as inflation expectations moved higher. In the U.S., there was a high inflation print mid-month, with CPI rising to its highest level in three decades.4 Toward the end of the month the Fed also announced a retirement of the word “transitory” and indicated an increased risk of higher inflation.
  • The Foreign Currency factor in the USD version of the lens fell steadily over the month, as the USD gained due to multiple reasons like the high inflation print and positive retail sales data in the U.S.5
  • Emerging Markets, on an unresidualized basis, were negative last month, but the poor returns were more than explained by currency movements and EM’s shared risks with the core macro factors (most strongly Equity). This resulted in the residualized factor delivering a positive return.
  • In terms of the macro style factors, carry factors struggled in both currency and bond markets, indicating that lower-yielding assets outperformed higher-yielding assets:
    • In the case of Foreign Exchange Carry, the factor was positioned short JPY, which outperformed (most notably during the Omicron risk-off move on November 26th), and therefore was a key detractor to the factor’s performance. 
    • In the case of Fixed Income Carry, the factor’s long position in U.S. 10-year Treasurys and short position in German 10-year bunds were the key detractors. The U.S. underperformed and Germany outperformed, given the relatively worse COVID-19 situation in northern Europe (sharp rise in hospitalizations).6
    • Despite the two macro style carry factors moving in the same direction this past month, these two factors have a long-term correlation of only ~10%. 
  • In terms of the equity style factors:
    • The Momentum factor was the best performer in the factor lens in November. The factor was up minimally for the first half of the month and then posted notable gains in the second half. 
    • Quality had a strong month as well, gaining from four of its five components, led by Profitability.
    • Small Cap stocks trailed large caps, extending the factor’s underperformance from October. The factor is now down about 5% on a YTD basis through the end of November.
    • The Crowding factor was in positive territory through November 25th, but then fell in the final days of the month to end down. 

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1Example sources:


3Example sources:


5Example sources:

6Example sources:


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