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Performance Of Factor Tilts: January 2019

Feb. 06, 2019 11:53 AM ETiShares Core S&P Small-Cap ETF (IJR), NOBL, RPV, RSP, SPLV5 Comments
Ploutos profile picture


  • In an ongoing series, I have illustrated for Seeking Alpha readers how five alternative weighting schemes to the traditional large-capitalization weighted index have produced outperformance.
  • I hope a display of these returns and a brief discussion about why these factor tilts deviated from the broader market can help readers with their asset allocation decisions.
  • Size, value, and their half-cousin, equal-weighing, outperformed in a strong rebound month for equity returns.
  • Low volatility and dividend growth posted strong returns, but these defensive strategies underperformed the broad market.
  • Hopefully, with this series, we can all get smarter about smart beta and alternative weighting schema.

In a late 2018 interview with Seeking Alpha editors in my 2019 Outlook piece, I suggested that I was becoming more constructive on equities as valuations cheapened late in the year. While I was becoming increasingly bullish, I did not expect this type of rebound this quickly. The S&P 500 (SPY) produced more than an 8% total return, its best monthly return in more than three years.

It was also a very strong month for the factor tilts that I have covered in this series. Below I show the cumulative performance of my "5 Ways to Beat the Market" from the beginning of the year through last Friday.

Performance of factor tilts January 2019Source: Bloomberg

As I showed last month, these five strategies have generated long-run outperformance versus the capitalization-weighted index. Owning smaller-cap stocks, stocks screened from the broad index based on value, stocks with lower realized volatility, stocks with long histories of dividend growth, and a simple equal-weighting of the stock market constituents have all generated market-beating gains.

Long-run performance of the S&P 500 versus various factor tilts

Source: Bloomberg

While the long-run outperformance of these strategies is demonstrable from the chart above, the table below puts the relative performance of these indices into context over trailing periods.

Factor tilt stock market performance

Below I have listed the performance of exchange-traded funds that replicate these factor indices. Given the more recent inception dates of these funds, we do not have the full histories that we have for the underlying indices above, which is why I will show both in this series. These are certainly not the only ways to get exposure to these factors, and increasing competition in the realm of smart beta is likely to push down expense ratios in the industry going forward.

For these five factors and the S&P 500, I have also calculated the standard deviation of monthly returns. In this series, I am using this volatility measure

This article was written by

Ploutos profile picture
Institutional investment manager authoring on a variety of topics that pique my interest, and could further discourse in this online community. I hold an MBA from the University of Chicago, and have earned the CFA designation. My articles may contain statements and projections that are forward-looking in nature, and therefore inherently subject to numerous risks, uncertainties and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance, and investment horizon.

Analyst’s Disclosure: I am/we are long IJR, RPV, SPLV, NOBL, RSP, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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