Scientific Beta Factor Report: Q4 2018
The Global X research team updated the Scientific Beta Factor Report for Q4 2018, analyzing the performance and characteristics of factors in the US and international markets. The full Q4 Factor Report can be read here.
United States: Low Vol Transcends Down Market
In Q4, the S&P 500 performed negatively alongside each of the factors. While Low Vol outperformed the benchmark by 444 basis points (bps), the remaining factors underperformed the S&P 500 by an average of 147 bps.
The Technology-heavy S&P 500 continued to outperform the Global X Scientific Beta US ETF (SCIU) for Q4. The Tech sector has driven the most returns for the S&P 500 this year but has negatively affected SCIU given its 6.6% underweight to the sector relative to the S&P 500.
Value index represented by the Scientific Beta United States Value Diversified Multi-Strategy Index. Momentum represented by the Scientific Beta United States High-Momentum Diversified Multi-Strategy Index. Size Index represented by the Scientific Beta United States Mid-Cap Diversified Multi-Strategy Index. Low Volatility represented by the Scientific Beta United States Low-Volatility Diversified Multi-Strategy Index.
Factor Investing in Europe, Asia, and Asia Ex-Japan
In Europe, as in the US, the only factor to outperform the STOXX Europe 600 Index was Low Vol, which outperformed by 108 bps. High Momentum underperformed the most, by 266 bps, followed by Size underperformance of 183 bps, and Value with an underperformance of 126 bps.
In Asia ex-Japan, Low Vol and Value both outperformed the MSCI Pacific ex-Japan Index. Low Vol outperformed by 301 bps and Value outperformed by 136 bps. For the two factors that underperformed, Size and Momentum, average underperformance was 265 bps.
In Japan, High Momentum was the lone underperformer and diverged from the MSCI Japan index by 259 bps. Value outperformed by 117 bps, Size outperformed by 139 bps, and Low Vol outperformed the benchmark MSCI Japan index by 448 bps.