Factor Olympics Q1 2022
And the winner is…
April 2022. Reading Time: 10 Minutes. Author: Nicolas Rabener.
SUMMARY
- Factor volatility was low despite the significant geopolitical and economic turmoil in Q1 2022
- Value is the clear winner with double-digit gains
- Quality stocks underperformed, but only moderately
INTRODUCTION
We present the performance of five well-known factors on an annual basis for the last 10 years. Specifically, we only present factors where academic research supports the existence of positive excess returns across market cycles and asset classes (read Factor Olympics Q4 2021).
METHODOLOGY
Our factors are created by constructing long-short beta-neutral portfolios of the top and bottom 10% of stocks in the US, Europe, and Japan, and 20% in smaller markets. Only stocks with a minimum market capitalization of $1 billion are included. Portfolios rebalance monthly and transactions incur 10 basis points of costs.
FACTOR OLYMPICS: GLOBAL RETURNS
The table below shows the long-short factor performance for the last 10 years ranked top to bottom. The global series is comprised of all developed markets in Asia, Europe, and the US. Aside from displaying the factor performance, the analysis highlights the significant factor rotation in terms of profitability from one year to the next, highlighting the benefits of diversified exposure (try Finominal’s Alpha Analyzer for a factor exposure analysis).
The performance of an equal-weighted multi-factor portfolio was positive as of the end of the first quarter and almost all of the performance can be attributed to the Value factor. The other four factors were slightly positive to negative, but effectively netted each other off.
