As U.S. equities struggled last month, just two S&P 500 factor indexes posted position returns in August.
The S&P 500 declined 1.6% in August, marking its second monthly decline year to date. While momentum and quality were the only S&P 500 factor indexes to record gains in August, five factors outpaced the parent index during the month.
In addition to momentum and quality, the growth, pure growth, and QVM Top 90% indexes beat the S&P 500. The factors that performed better in August tended to tilt toward quality and growth, while beta and value tilts were at the bottom of August’s league table, according to S&P Dow Jones Indices.
Momentum, one of the lowest-beta factors according to S&P Dow Jones Indices, was rewarded in August as lower beta indexes tended to perform better.
The factor indexes with the worst relative returns for the month were those with the highest level of systematic risk, according to S&P Dow Jones Indices. In August, the worst performers included high beta, pure value, enhanced value, and high dividend. Notably, high beta and pure value are the two highest-beta factors across the S&P 500 factor family.
Factor ETFs Providing Exposure to Momentum and Quality
Year to date, quality is the third best-performing S&P 500 factor index, beating the benchmark, up 20.3% as of the end of August. During the same period, momentum is up just 4%. To compare, the parent S&P 500 has gained 18.7% year to date.
SPMO’s underlying index includes the top 100 stocks in the S&P 500 based on 12-month prior risk-adjusted performance. The index weighting is inversely proportional to the trailing volatility of each component, subject to single stock and sector constraints, according to S&P Dow Jones Indices.
The S&P 500 Quality is designed to track the 100 stocks in the S&P 500 with the highest quality score. The quality score is calculated by considering return on equity, accruals ratio, and financial leverage ratio.
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