A recent article in Advisor Perspectives provides an overview of the performance of various factors in the first quarter of 2018.
Noting several developments that led to increased market volatility (including tighter U.S. monetary policy and trade tensions), the article outlined the following points:
- Growth, small size and momentum factors were the best-performers in the first quarter. “Many investors expected tax cuts to benefit smaller stocks, which were viewed as less likely to be affected by a potential trade war,” it said.
- Value and dividend yield were among the worst performers—Value, the article reports, was hurt by poor performance in consumer staples and insurance companies, and dividend yields were constrained by real estate exposure (not expected to benefit from tax cuts) and an “underweight position in consumer discretionary and technology shares.”
- The low volatility factor helped “cushion the market’s decline late in the quarter,” the article reports, adding that this strategy could “provide a path for diversifying risk and reducing concentration risk present in market cap-weighted indexes and momentum strategies.”
The article concludes: “Despite recent market volatility, the underlying strength of the U.S. economy and expected profit growth within the information technology sector are both positives for the momentum factor and may play against technology’s inherent risks. Moreover, investors are still digesting quarterly earnings results. With the bar to beat earnings estimates set low, we could see upside surprises.”