Weekly Factor Returns
A look at what factors influenced the market last week
The large and small cap Russell indices were positive last week. The Russell 1000 rose 2.74% and the Russell 2000 rose 3.59%. Factor returns were directionally similar for four of the five key factors. Medium-term momentum and Volatility continued to be major drivers.
Stocks that had outperformed the most over the previous six months reversed last week and underperformed low momentum stocks. The spread between stocks with the highest and lowest Medium-term momentum was -3.66% among large caps and -4.26% among small caps. Each return was greater than one standard deviation below its long-term weekly average. Short-term momentum also experienced a reversal as the most recent winners underperformed the most recent losers.
The highest Volatility stocks outperformed those with the least Volatility by 3.25% and 2.36% in the large and small universes, respectively. This is indicative of higher risk taking. Volatility returns were within normal ranges.
Value was not a major contributor to returns. The factor was mildly negative in the large cap space and mildly positive in the small cap space. Size was more meaningful within the large cap index. There, smaller companies outperformed larger issues by 2.73%, on 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.