Scientific Beta Factor Report: Q4 2018

by: Global X ETFs
Summary

United States: Low Vol Transcends Down Market.

Quarterly Factor Returns vs. S&P 500.

Factor Investing in Europe, Asia, and Asia Ex-Japan.

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 (NYSEARCA: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.

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.

Carefully consider the Funds’ investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Funds’ summary or full prospectus, which may be obtained by calling 1-888-GX-FUND-1 (1.888.493.8631), or by visiting www.globalxfunds.com. Read the prospectus carefully before investing.

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.

Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.

EDHEC Risk Institute Asia Ltd. indexes have been licensed for use by Global X Management Company, LLC. Global X Funds are not sponsored, endorsed, issued, sold, or promoted by EDHEC Risk Institute Asia Ltd. nor does this company make any representations regarding the advisability of investing in the Global X Funds.

Global X Management Company, LLC serves as an advisor to the Global X Funds. The Funds are distributed by SEI Investments Distribution Co., which is not affiliated with Global X Management Company, LLC.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.