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Factor Tilt Performance: February 2021

Ploutos profile picture


  • In past articles, I have illustrated for Seeking Alpha readers how seven factor tilts or alternative weighting schemes to the traditional large capitalization-weighted index have produced historical 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 and Value, which have dramatically outpaced the market in recent months, continued to be winners as reflationary bets are placed.
  • Momentum and Low Volatility, two strategies formed based on trailing performance, lagged in February. Momentum's tech/Tesla overweight hurt performance while Low Volatility lagged the reflationary move amidst higher rates.
  • Dissecting the recent market move into its factor components could be useful to investors evaluating where to deploy capital.

The reflation trade was the dominant story in global capital markets in February 2021, and the theme impacted both the factor tilt winners and losers. On the positive side, the "buy the dip" strategies I espoused last April continue to outperform as market participants increasingly price in an economic recovery.

In a mini-series of articles beginning on April 17th, 2020 I highlighted for investors strategies to "buy the dip". I commented that timing the bottom is always a challenge, but that investors do know what strategies have worked the best from previous bottoms when the market has recovered. That article highlighted opportunities in Size, Value, and Equal-Weighting. Those three strategies have dramatically outperformed the broad market since the March 2020 lows. Since March 23rd, 2020, the S&P 500 is up 73%, including reinvested dividends. An equal-weighted version of the index is up nearly 90%. A value-focused tilt to the S&P 500 constituents is up 109%. The S&P Smallcap 600 is up 118%. In February 2021, those three strategies were again winners, posting 6 to 10.6% monthly returns that doubled or tripled the broad market return.

While these small-cap and value focused strategies have done well in a reflationary environment, others have lagged. Low Volatility, which is comprised of lower risk stocks that tend to have more fixed income-like characteristics, lagged appreciably as rates rose in February. Momentum, one of the big winners of 2020, due in part to bets on tech and other tech halo stocks, also lagged on the month. Historically, tech stocks have done poorly when real rates rise, and February 2021 saw the sector slightly underperform. The Momentum strategy, which has rode that sector to market-beating gains, weakened as well.

In the table below, I have listed the performance of seven factor tilts and the capitalization-weighted benchmark over

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 RPV, IJR, SPLV, NOBL, RSP, MTUM, 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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Comments (3)

Augustus profile picture
Thank you for the continuing updates. Your articles seem to put the changes of the leading factor in context with perspective.
Great article - my vote - please don't shorten them.
kayak1 profile picture
Your articles are always informative but if you could shorten them, they’d carry more punch...
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