Scientific Beta Factor Report: Q3 2017

by: Global X ETFs

The Global X research team updated the Scientific Beta Factor Report for Q3 2017, analyzing the performance and characteristics of factors in the US and international markets. The full Q3 Factor Report can be read here.

United States: Momentum Continues its Dominance… Again

Momentum has now led the four factors below and outperformed the S&P 500 in each of the first three quarters of 2017. In Q3, it was the only factor to outperform the S&P 500, rising 4.69% vs. 4.48% for the benchmark. Value, Low Volatility and Size underperformed by 147, 207, and 249 basis points (bps), respectively, weighing on the returns of multi-factor strategies that target these factors.

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.

International: Momentum and Value Lead the Way

Momentum's outperformance carried over to the international arena, beating the regional benchmark in Europe, Japan, and Asia ex-Japan. In addition to Momentum, Value also outperformed in each region. Low Volatility was the factor laggard, falling behind each of the regional benchmarks this quarter.

In Europe, three factors outperformed the Stoxx Europe 600 index, including Momentum, Value and Size. Momentum outperformed by 218 bps, followed by Value at 129 bps, and Size with 58 bps outperformance. Low Volatility underperformed the benchmark by 102 bps.

In Japan, Momentum and Value outperformed the benchmark MSCI Japan Index, while Low Volatility and Size lagged behind. The best performing factor was Momentum, delivering 130 bps of outperformance versus the benchmark, followed by Value with 15 bps outperformance. Low Volatility underperformed by 149 bps and underperformed by 192 bps.

In the Asia ex-Japan region, three of the four factors outperformed the benchmark MSCI Pacific ex-Japan Index. The best performer was Value, delivering 198 bps of outperformance, followed by Momentum with 133 bps outperformance and Size with 37 bps. Low Volatility underperformed by 72 bps.

FOOTNOTES

Definitions

SciBeta United States Low-Volatility Diversified Multi-Strategy Index: The SciBeta United States Low-Volatility Diversified Multi-Strategy Index represents the performance of large and medium capitalisation companies from the United States universe that exhibit Low Volatility characteristics while ensuring a high degree of diversification.

SciBeta United States Mid-Cap Diversified Multi-Strategy Index: The SciBeta United States Mid-Cap Diversified Multi-Strategy Index represents the performance of large and medium capitalisation companies from the United States universe that exhibit Mid-Cap characteristics while ensuring a high degree of diversification.

SciBeta United States Value Diversified Multi-Strategy Index: The SciBeta United States Value Diversified Multi-Strategy Index represents the performance of large and medium capitalisation companies from the United States universe that exhibit Value characteristics while ensuring a high degree of diversification.

SciBeta United States High-Momentum Diversified Multi-Strategy Index: The SciBeta United States High-Momentum Diversified Multi-Strategy Index represents the performance of large and medium capitalisation companies from the United States universe that exhibit High Momentum characteristics while ensuring a high degree of diversification.

Scientific Beta United States Diversified Multi-Strategy Index: This index represents the performance of large and medium capitalisation companies from the United States universe and is weighted in a manner to ensure a high degree of diversification when compared to a market capitalization weighted benchmark.

S&P 500 Index: The S&P 500 is an index of 500 stocks chosen by factors such as market size, liquidity and industry grouping. The Index is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large-cap universe

Stoxx Europe 600 Index: The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalization companies across 18 countries of the European region: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

MSCI Pacific ex Japan Index: The MSCI Pacific ex Japan Index captures large and mid cap representation across 4 of 5 Developed Markets (NYSE:DM) countries in the Pacific region (excluding Japan). With 150 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country

MSCI Japan Index: The MSCI Japan Index is designed to measure the performance of the large and mid cap segments of the Japanese market. With 318 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Japan.

Index returns are for illustrative purposes only and do not represent actual Fund performance. Past performance is no guarantee of future results. Indices are unmanaged and do not include the effect of fees, expenses or sales charges. One cannot invest directly in an index.

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Investing involves risk, including the possible loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. For the Scientific Beta Japan ETF, the Japanese economy may be subject to considerable degrees of economic, political and social instability, which could have a negative impact on Japanese securities. In addition, Japan is subject to the risk of natural disasters, such as earthquakes, volcanoes, typhoons and tsunamis, which could negatively affect the Fund.

Diversification may not protect against market risk. There is no assurance the goals of the strategy discussed will be met.

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