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 - August 2021.
Market Themes & Factor Performance Summary
- Global Equity markets fell in September, ending a seven month winning streak. Market participants contended with several dynamics over the month, including an indication from the U.S. Federal Reserve that tapering of asset purchases may soon be warranted, fears of slowing growth and rising inflation, a global energy crunch (more on this when we discuss Commodities), and regulatory and Evergrande-related risks emanating from China.
- 10 year government bond yields generally rose over the month, hurting the Interest Rates factor (which is composed of global sovereign 7-10 year bonds). In the U.S., yields rose ~20 bps from 1.3% to 1.5%.1 And in Europe (as proxied by Germany), yields rose by a similar amount from -0.4% to -0.2%.2
- As mentioned earlier, a global energy crisis supported the residualized Commodities factor, which ended the month as the best performing factor in the USD version of the lens. A supply crunch sent energy prices higher, with natural gas surging approximately 30%, and crude oil up nearly 10%.3
- The residualized Credit factor gained in September. The underlying factor input (made up of U.S. and European investment grade and high yield bonds) was negative, but performed better than expected given the large downward moves in Equity and Interest Rates.
- In terms of the equity style factors:
- Some market participants attribute the outperformance of Value stocks in September to higher yields.4 All four components of Value were up in September, with Long-Term Reversal and Book-to-Price leading the way. The factor is now up 11.8% YTD through September.
- The Crowding factor experienced fairly sizable gains, indicating that stocks that were heavily shorted by the investment community underperformed their less heavily shorted counterparts.
- Finally, the defensive equity styles (Quality and Low Risk) struggled last month, each losing 2% or greater. Within Quality, the Profitability, Leverage, and Earnings Variability components were responsible for losses, while Beta was the detracting component for Low Risk.
References to the Two Sigma Factor Lens and other Venn methodologies are qualified in their entirety by the applicable documentation on Venn.
4Example source: Credit Suisse.
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