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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
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: