As equity allocators investing with an eye toward factor-based risks, we saw some active managers struggle in 2022 as the market rotated to a narrower set of beneficiaries amid immense shifts in commodity prices, economic conditions, government policy, and interest-rate expectations. It is not surprising to find that stock selection is challenged when the macro environment leads to less differentiation and a narrow cohort of winners. Instead of seeing strong fundamentals rewarded in value, growth, and quality, for example, we witnessed factor rotation in the tails — i.e., across deep value (related to rising rates), speculative growth (related to the economic slowdown), and lowest beta (related to war and commodity shocks). Over the longer term, we believe fundamentals eventually win, but our research on the factor performance of the past couple of years suggests some important takeaways for allocators:
Monthly Market Review — August 2024
A monthly update on equity, fixed income, currency, and commodity markets.
By
Brett Hinds
Jameson Dunn