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2024 Q1 Small Cap Factor Review

What went up, kept going up - Momentum lives up to its name


All data in this post relates to the Jackson Creek small cap universe of stocks.


Medium-term Momentum (MTM) was the clear winner among our five key factors in the first quarter. The Decile 1 - Decile 10 spread was 22.4%. This means the average return of the highest ranking MTM stocks was 22.4% higher than the average return of stocks exhibiting the least medium-term momentum. Previous winners in the small cap universe continued to outperform throughout the quarter.


Volatility was on the negative side. The D1-D10 spread during the quarter was -15.6%. Negative Volatility is not necessarily a bad thing. It depends on how your portfolio is positioned. If you desire less Volatility, than the negative return is helpful.


Value was positive with an 11.0% spread. The most attractively valued stocks outperformed the least attractively valued by 11.0%, on average. The Value factor was rewarded as Growth struggled in light of updated ‘higher-for-longer’ interest rate expectations.


Size had a positive spread, although capitalization does not have the same affect in the small cap universe as it does in the large cap index.



In the first quarter of 2023, we noted how factor returns were bunched in a tight range as of the end of March (read: Are We Heading For More Volatility?). The first quarter of 2024 was just the opposite scenario. The daily cumulative return chart below shows the path of returns throughout the first quarter of 2024 and each first quarter back to 2019. MTM had a positive start and kept climbing higher. Volatility was negative the whole time. Size & Value followed a similar path, returning 7.34% and 11.0%, respectively. Often, as was the case in Q1 2023 (at least for Vol) factor returns are erratic during short periods and the ending return does not explain the course of getting there. This quarter was not one of those cases. Factor returns were pretty linear with MTM leading the whole way and Volatility trailing the whole way.



In the past, we have focused on Volatility using what looks like a “spaghetti” chart (read: Halftime Update & 2023 Small Cap Factor Review). Here, we will dig into Medium-term Momentum.


Comparing MTM throughout the years we can visually see how much of a strong start it was relative to previous years. Looking back at our historical data, we see MTM had the best first quarter ever - by a longshot. The first quarter’s 22.4% spread is well above any other Q1 dating back to 2000. The second best Q1 MTM spread occurred in the first three months of 2006 where the spread was 8.6%.


Will there be a MTM reversal? Possibly. Probably. We cannot know when with any certainty. What goes up must come down eventually. Although, 2000 (orange line above) and 2007 (dark green) have shown us that MTM can experience very positive returns in any given calendar year.


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