What to watch in factors

By: The AGFiQ team • December 12, 2018

Low volatility and momentum have been two of the best performing factors in most regions around the world so far this year, but returns have been volatile in recent months and the potential for new leadership is significant heading into 2019.

In recent weeks, we’ve seen a broad shift in tactical, shorter- term factor performance that has coincided with higher market volatility, rising interest rates, and various bouts of geopolitical uncertainty, despite strong company earnings and solid economic growth.

The result has been a much stronger showing for quality of late and a rebound in value, which hit historical lows in some regions earlier in the year. Low volatility, meanwhile, has maintained its strength, with growth and momentum (particularly longer-term momentum) experiencing weakness across all regions.

Going forward, we expect to see some moderation in factors that have done well recently, but remain committed to a multi-factor approach that ensures we both mitigate risk and have diversified alpha drivers that carry over through different market cycles.

Factor Performance

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Differential of average 12-month return of stocks in the top and bottom quintiles of MSCI ACWI ordered by the respective factor values from November 30, 2017 through November 30, 2018

Source: AGFiQ, FactSetFactors used (respective factor group’s shown above): Price to Book Ratio (Value), Market Capitalization (Size), 300 Day Volatility (Volatility), Return on Equity (Quality), 12-month Price Change (Momentum)

AGFiQ Asset Management (AGFiQ) is a collaboration of investment professionals from Highstreet Asset Management Inc. (HSAM), a Canadian registered portfolio manager, and of FFCM, LLC (FFCM), a U.S. registered adviser. This collaboration makes up the quantitative investment team.

Commentaries contained herein are provided as a general source of information based on information available as of December 7, 2018 and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Investors are expected to obtain professional investment advice.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

Publication date: December 12, 2018