Holiday Wrappings 2019
Welcome to the 49th and final issue of Factor Spotlight for 2019. First off, all of us at Omega Point would like to wish you and your families a joyous and peaceful holiday season and a happy, prosperous, and ‘factor aware’ New Year in 2020.
We are beyond grateful to our readership community for your enthusiastic support and feedback over this past year. We realize that substantial volumes of industry content from a wide array of sources vie for your scarce and precious time, so I can’t overstate how happy we are to hear that the insights and solutions we’ve shared through Factor Spotlight have contributed to the success of your businesses.
We love publishing Factor Spotlight for you and plan to continue our deep-dive explorations into many more topics and trends in 2020. And as always, keep your questions and feedback coming! They not only help us continually improve our newsletter content, but also in many cases make their way into the features and functionality available to you within the Omega Point Platform.
We’re also grateful for a stellar year on the customer and product fronts (thanks to so many of you as well), and look forward to an even bigger and better 2020 as the critical role that factors play in portfolio performance continues to make further inroads within the institutional investment community.
In January, we will pick back up with last week’s topic of alpha-driven stocks and will extend our analysis to sector and industry levels. For this special year-end edition, we’re thrilled to unveil the top 10 most popular issues of Factor Spotlight of 2019 (based on % readership and engagement levels) and wrap up with our usual US and Global weekly factor summaries.
Regards,
Omer
THE 10 MOST POPULAR FACTOR SPOTLIGHTS OF 2019
10. THE GLOBAL VALUE ENVIRONMENT (MAR 15)
In this issue, we took our readers on a trip to discover some of the most Value-friendly markets abroad.
9. SUSTAINABLE INVESTING - QUANTIFIED (JUN 30)
With sustainable investing growing in popularity, this issue launched a 9-part ESG series that introduced readers to Omega Point's ESG framework (with help from data partner OWL Analytics) and empirically demonstrated how ESG factors have performed historically.
8. Q1 EARNINGS IMPACT ON INDUSTRIES (MAY 5)
Earnings season has always been tumultous for many investors, and this issue was the first of a 2-part series that looked more closely at the industry sectors that experienced the most sizable swings in Growth and Profitability resulting from 2019 Q1 earnings.
7. RAPID DECLINE IN GLOBAL RISK (APR 21)
This issue took a step back to focus on contrasting the vulnerability of the global stock market vs. the US from a risk managers’ perspective.
6. IMPACT OF THE TRADE WAR IN THE US (MAY 26)
This issue looked into how the escalating trade war between the China and US impacted investors in US equities. The following week we applied a similar analysis to Chinese equities.
5. WHERE'S THE ALPHA? (DEC 15)
Our most recent Factor Spotlight and an early holiday treat for many readers judging from feedback to-date, this issue examined the common qualities associated with today’s high-alpha stocks. Some of the conclusions were certainly eye opening to many readers.
4. ADDING GLOBAL MACRO INSIGHTS TO YOUR PORTFOLIO (NOV 17)
While many investors are familiar with traditional factors (volatility, value, growth..), this issue introduced a new generation of ‘macro factors’ courtesy of Omega Point’s data partner Wolfe Research, and took a look at the S&P 500 through a macro factor lens.
3. TECH INVESTORS TAKE NOTE: GROWTH & MOMENTUM ARE OVERBOUGHT (JUN 9)
This issue looked more closely at a highly unusual rally in technology and other high-growth sectors that carried potentially wide-ranging implications for investors worried about sell-offs.
2. BUILDING A SUPERIOR SPY HEDGE (OCT 27)
This issue uncovered that investors who short the SPY ETF as a hedge against stock market risk are actually going long volatility, and demonstrated how investors can build a superior hedge basket using the Omega Point platform.
1. FACTOR SPOTLIGHT FLASH REPORT: PEELING THE MOMENTUM ONION (SEP 11)
Although the S&P 500 remained near all-time highs, this special intra-week issue highlighted a rapidly escalating development in momentum that was introducing added risk to the markets. (Postscript: Momentum-induced volatility did induce a subsequent pullback over the following month, but happily for long investors, 2019 ended on an upswing!)
US & Global Market Summary
US Market: 12/13/19 - 12/19/19
- The major US indices set record highs again this week, buoyed by some good economic data and progress on multiple trade fronts.
- The US House passed the USMCA bill (NAFTA’s replacement) on Thursday, compounding with last week’s partial China deal to stoke investor optimism.
- On Friday, government data showed that consumer spending increased +0.4% last month, the biggest increase since July.
- Congress passed spending bills on Thursday that will sidestep a partial government shutdown.
Factor Update - US Model
- Value continued to be a fast riser, as it jumped up 0.57 standard deviations and is closing in on neutral territory.
- Volatility saw positive normalized gains, and is now tagged as an Overbought factor at +1.19 SD above the mean.
- After gaining some ground earlier this week, Profitability ticked down to -1.26 SD below the mean and is still Oversold.
- Momentum peaked at +1.31 SD above the mean on 12/9 and now appears to be reverting, shedding its Overbought designation
- Earnings Yield appears to have bounced off a bottom of -1.08 on 12/16 and has just exited Oversold territory.
- US Total Risk (using the Russell 3000 as proxy) fell by 14bps.
Factor Update - Worldwide Model
- Exchange Rate Sensitivity was the week’s biggest winner, shooting up out of Oversold space by 0.65 SD.
- Value also saw strong normalized gains abroad, approaching Extremely Overbought territory at +1.65 SD above the mean.
- Global Profitability continued to rally, up +1.24 standard deviations in the past two weeks and on the cusp of exiting Oversold space.
- Volatility and Market Sensitivity both saw slight gains, with Market Sensitivitypoised to cross back into positive territory.
- The bleeding in Earnings Yield has started to slow as it approaches Oversold space, just a few weeks after it was an Overbought factor.
- Momentum continued to revert away from its recent peak of +1.10 SD above the mean on 12/11.
- Global Risk (using the ACWI as proxy) ticked up slightly to 10.75% on 12/16 and ended up down 2 bps to 10.64%.
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More Related Insights
This analysis will focus on the US market using our US Extreme Movers Portfolio. The portfolio is a weekly-rebalanced, market-neutral portfolio that invests long in the top decile of best performers and shorts the bottom decile of performers in the Russell 1000 index. The characteristics and performance of the Extreme Movers Portfolio point to the areas of the market that were in and out of favor and provide valuable insight into themes that drove stock returns.
Many of our community members manage global funds or have focused Developed and/or Emerging Market strategies. As you analyze your 2023 strategy performance, we hope that the below will help you quantify the market environment of 2023 and answer questions such as: In comparison to prior years, was 2023 more of alpha or factor-driven year? Which factor characteristics (sector, fundamental, macro, etc..) were associated with positive and negative market moves in 2023? Which factor characteristics had standout positive or negative performance, unlike prior years?
As we enter the new year, we typically find that many of you focus your efforts in the first two weeks of January to conduct a 2023 review of your portfolios in support of your annual investor letters. At Omega Point, we’ve found that we can be potentially supportive of these efforts by helping you quantify the market environment of 2023 and answer questions such as: In comparison to prior years, was 2023 more of alpha or factor-driven year? Which factor characteristics (sector, fundamental, macro, etc..) were associated with positive and negative market moves in 2023? Which factor characteristics had standout positive or negative performance, unlike prior years? Below, you will find a rich set of analytics and a narrative to help you answer the above questions and go deeper as well. Since this analysis is a bit longer than most weeks, we’ve also included a TLDR section so you can get the key highlights quickly and go deeper at your own leisure. We greatly appreciate you being a member of our community and look forward to collaborating with you in 2024.