1Q18 US Factor Performance

This is a wonkish post updating my US factor performance graphs. I use the data from Ken French’s Data Library for the following:

  • US Market
  • US Size
  • US Value (Book-to-Market)
  • North American Momentum
  • US Investment (Conservative Reinvestment Policy Premium)
  • US Operating Profitability

(Note that this data is produced on a lag so my “quarter” is always a month behind the calendar quarter. This update adds 12/17 through 02/18)

First chart out of the gate is our rolling 3-year factor returns. The Market factor continues to lead the pack in terms of performance since the global financial crisis. This is one of those data points that has led me to conclude Something Changed in the markets post-2008.

Longtime readers know my view is that quantitative easing by central banks pushed up cross asset class valuations, effectively lifting all boats to the detriment of many asset managers (hardly a unique perspective). This has been a significant tailwind contributing to the popularity of market cap weighted index funds. However, when and to what extent this trend reverses remains to be seen.

As the chart shows, factor performance tends to move in cycles. So I feel it is unlikely that Market factor performance will dominate forever. That said, it is basically impossible to time these things.

Feb18_Rolling_factors
Source: Demonetized Calculations; Ken French’s Data Library

The single factor charts below more or less tell the same story.

If you could go back in time a few years and buy one of these factors, Market would be the clear winner. Again, if you’re Vanguard, this has served as a massive tailwind for your index products.

Much ink has been spilled about the recent weakness of the Value factor and this data shows a continuation of that trend. Likewise Value’s cousin, Conservative Reinvestment, has performed poorly.

I am not going to belabor the point here. I will simply reiterate that the tidal wave of interest in market cap weighted index funds is not likely to abate until the trends in cross factor performance shift in a meaningful way.

Feb18_Mkt
Source: Demonetized Calculations; Ken French’s Data Library
Feb18_Size
Source: Demonetized Calculations; Ken French’s Data Library
Feb18_Val
Source: Demonetized Calculations; Ken French’s Data Library
Feb18_Mo
Source: Demonetized Calculations; Ken French’s Data Library
Feb18_Inv
Source: Demonetized Calculations; Ken French’s Data Library
Feb18_Prof
Source: Demonetized Calculations; Ken French’s Data Library

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