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Q3 2017 Factor Performance Results Webinar – Recap

Thursday 12th October, 2017

Style Research recently released Q3 2017 Factor Performance Results. The article below recaps the live presentation by Bernie Nelson on October 10, 2017. Detailed reports and the webinar recording are also available.

The Q3 2017 Style Research Factor Performance update focused on dominant factor results across the world’s major markets.

Key Takeaways

Across all regions, the strongest factor performances in a generally strong quarter for equities were high forecast growth, high estimate revisions, and momentum when the overall results are adjusted for country and sector biases.

Hunt for Growth Drives Developed Markets

The best performing factors in Developed markets were:

  • high forecast earnings growth
  • high forecast earnings estimate revisions
  • high beta
  • high momentum

This is consistent with a continued late cycle bull market with a scarcity of earnings growth and investors struggling to find further growth opportunities.

Although higher dividend yield stocks underperformed, other value factors were fairly neutral over the quarter. Companies with more stable returns and with stable forecast earnings underperformed as investors focused on growth and momentum. There was a small bounce back in value factors in September while growth underperformed, but this was not enough to change the year-to-date weakness in value or strength in growth. Given the weight of the US market within the developed markets, one hypothesis is that Trump’s recent announcement on tax reform may have rekindled the reflation trade that was hot last year.

q3 2017 Factor Results Developed Markets

Outperformance in Developed markets is seen strongly across growth, high beta and high momentum, while value measures were more neutral.

High Forecast Earnings Growth Drives US

The quarterly results for the US were almost identical to Developed markets. This is not surprising given the dominant weight of the US in Developed markets. Again, strong market relative performance came from high forecast earnings growth, high estimate revisions, high beta, and high momentum. High forecast earnings growth was the best performing growth factor in the US, driven by stocks such as Facebook, Apple, NVidia, Boeing, and AbbVie.

Style Research Q3 2017 Factor Results for US

The US market’s factor performance in Q3 aligns closely with the results of Developed markets, revealing similar strength in growth, high beta and higher momentum.

Value Also Running With Growth In Europe

Similar to Developed and US, high forecast growth, high estimate revisions, and high momentum were the strongest factor performers. However, value was also positive alongside growth, and especially noticeable in high cash flow yield and high sales to price. Europe also saw a bounce back in value in September, with earnings yield performing more strongly in September compared with Developed or US. A longer term analysis of high forecast estimate revisions in Europe, within sectors and countries, confirmed strong market relative outperformance over the past 20 years. A valuation analysis across a range of factors showed that the high forecast estimate revisions are not currently that expensive.

Style Research Q3 2017 Factor Results for Europe

In Europe, value was positive alongside growth in Q3, especially noticeable in high cash flow yield and high sales to price. Europe’s bounce back in value during September was driven by earnings yield.

Hidden Value in China’s Domestic Market Changes EM Perspective

High forecast growth, high estimate revisions, and momentum were even stronger in Emerging markets than Developed, US, and Europe. Value stocks were also generally weak. However, a study of the domestic China “A” shares market revealed that value factors had strongly outperformed in that market over the past year, a result that is overlooked when using more common indices for China or Emerging markets. This reveals a strong contrast of investor sentiment between the US and domestic China A shares. Investors may be nervous about further economic growth in the US and cautious of late cycle weakness. But there is an underappreciated strength of confidence in the Chinese domestic market. And as the domestic Chinese market becomes increasingly accessible to investors, it will be interesting to see if value investors start to invest more heavily in China as a result.

Style Research Q3 2017 Factor Results for Emerging Markets

Overall Emerging Markets performance reveals strong Q3 results for growth and momentum factors while value factors were considerably weak. However, a closer look at domestic China “A” shares reveals that value factors were strong performers.

Get the Full Picture

Get the complete analysis of which specific factors contributed to results in the Style Research Q3 2017 Factor Performance Study. Click here to access the full recording of the webinar and request various regional reports.

Author: Bernie Nelson | Categories: Markets Analysis, Quarterly Style Factor Performance, Style Research Markets Analyzer

Access the Q3 2017 Factor Performance results and webinar recording.

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