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 - October 2020.
Market Themes & Factor Performance Summary
- Despite a strong first half of the month, global Equity markets sold off in the back half due to a resurgence of COVID-19 cases globally, leading to stricter lockdown measures namely in Europe.1
- 7-10 year global sovereign bonds exhibited mixed performance in October. For example, the U.S. and U.K. saw slight increases in their yields, while yields on German bunds dropped on European virus concerns. This mixed performance resulted in a virtually flat return for the Interest Rates factor, while it hurt the duration-neutral Fixed Income Carry factor, which was positioned long U.S. bonds and short German bunds over the month.
- The residualized Commodities factor posted 82nd percentile performance. Falling energy prices were outweighed by positive performance in other commodity sectors, such as grains and industrial metals.
- The residualized Emerging Markets factor was up over 2%. Emerging market equities, supported in part by strong economic data out of China2, posted positive absolute returns and even stronger relative returns compared to their developed market counterparts.
- In terms of the macro style factors:
- In addition to the notes on the Fixed Income Carry factor above, the Equity Short Volatility factor struggled in October. The factor’s underlying index, the CBOE PutWrite Index, delivered nearly -3% returns as the VIX rose from 26.37 to 37.86.3 The residualized factor was only down ~1% though, as some of its negative returns could be explained by falling Equity markets.
- In terms of the equity style factors:
- The Small Cap factor was the best performer in October, with small cap stocks outperforming their larger counterparts, especially in the U.S. For example, the Russell 1000 Index (U.S. large cap stocks) was down -2.5% in October versus +2.0% returns for the Russell 2000 Index (U.S. small cap stocks).
- Crowding also posted strong returns, with stocks that are heavily shorted by the investment community underperforming those stocks that aren’t as heavily shorted.
- Quality was an underperforming equity style factor in October. Four of the factor’s five components were negative, with Profitability detracting the most. Investment Quality managed to eke out a 0.75% gain for the month.
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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