Weekly Factor Returns

A look at what factors influenced the market last week

Equities rose for the second consecutive week. The small cap Russell 2000 gained 1.77%, the large cap Russell 1000 gained 1.50%, and the Russell MidCap gained 1.34%.

Two factors had incongruent returns across the capitalization spectrum. Value and Volatility spreads exceeded normal expectations.

Medium-term momentum (MTM) reversed in each index. Stocks that had performed best over the previous six months tended to underperform last week. MTM fell the most in the mid cap index (-1.70%).

Short-term momentum (STM) spreads were mixed, with positive returns in the large and mid cap indices, while small cap stocks experienced a STM reversal.

Size also generated dissimilar return profiles. The largest ten percent of stocks outperformed the smallest ten percent, on average, in the Rusell MidCap index. The opposite was true in the Russell 2000 where smaller companies tended to outperform the largest companies in the index. Size was not influential to returns in the Russell 1000.

Value was not in favor last week. The most attractively valued stocks in each index underperformed the least attractively valued. Value declined the most in the mid cap index, where the spread was -2.55%. The Value spread was -2.27% in the Russell 2000 and -2.09% in the Russell 1000. Each spread was greater than one standard deviation below its average.

Volatility was major contributor to returns. Higher Volatility stocks outperformed lower Volatility stocks by a wide margin in each index. Volatility was highest in the Russell 1000 (+6.71%), followed by the Russell MidCap (+6.49%), and then the Russell 2000 (+5.40%). The small and mid cap Volatility spreads were greater than one standard deviation above their averages. The large cap Volatility spread was two standard deviations above average.

In this series, we highlight several factors’ returns along with the broad index. These are factors – or stock characteristics – we monitor closely. Factor returns equal the difference in the average return of the highest ranked 10% (decile 1) of stocks minus the lowest ranked 10% (decile 10) within each metric. Returns are based on stocks that pass our screen for liquidity, price, and analyst coverage; therefore, some index constitutes are excluded (except for index return). Ranks are sector neutral and equal weight. Stocks are ranked one week before the return period date, with returns calculated for the following week.

Read factor explanations here.

The Russell 1000 Index is a U.S. stock market index that tracks the highest-ranking 1,000 stocks in the Russell 3000 Index, which represent about 93% of the total market capitalization of that index. 

The Russell Midcap Index is a stock market index that measures performance of the 800 smallest companies in the Russell 1000 Index. 

The Russell 2500 Index measures the performance of the 2,500 smallest companies in the Russell 3000 Index, with a weighted average market capitalization of approximately $4.3 billion, median capitalization of $1.2 billion and market capitalization of the largest company of $18.7 billion.

The Russell 2000 Index is a small-cap U.S. stock market index that makes up the smallest 2,000 stocks in the Russell Index. It was started by the Frank Russell Company in 1984. The index is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group. 

Index performance is presented as a benchmark for reference only and does not imply any portfolio will achieve similar returns, volatility or any characteristics similar to any actual portfolio.  The composition of a benchmark index may not reflect the manner in which any is constructed in relation to expected or achieved returns, investment holdings, sectors, correlations, concentrations or tracking error targets, all of which are subject to change over time. You cannot invest directly in an index. Index performance does not reflect the deduction of any investment management fees, transaction costs, or expenses, and the performance of any investment product may differ from the index.