U.S. Equity Risk Factors Struggle To Offset Broad Market Slide
James Picerno | Sep 09, 2022 03:19AM ET
Escaping the pull of market beta is always tough for equities, especially in a year of sharp losses for the broad market. Although some slices of risk factors are doing better than others, financial gravity continues to dominate in 2022, based on a set of proxy ETFs.
Relatively high dividend yield continues to deliver to softest year-to-date decline for our factor opportunity set. Vanguard High Dividend Yield Index (VYM) is off 5.4% so far in 2022, as of the Sept. 7 close. That’s a mild setback vs. the broad stock market’s 15.6% haircut, based on the S&P 500 (SPY).
But it gets worse. The deepest loss in the factor space year to date: large-cap growth stocks. The iShares S&P 500 Growth ETF (IVW) has tumbled more than 22%.
It’s tempting to look for bargains after a sharp market decline and so contrarian-oriented investors with a relatively long-term focus may want to consider the opportunities. Looking at the factor ETFs through a momentum lens, however, suggests that it’s still premature for assuming that a rally of some duration has started.
For some perspective, consider how our factor ETF list stacks up with a proprietary momentum ranking. Using the aggregate Signal score as a guide suggests that high dividend yield (VYM) and liquidity (VFLQ) are the best of the bunch – that is, the least worst of the bunch. Both ETFs are currently posting Signal scores of 0, a neutral value. Signal scores range from maximum bearish (-5) to maximum bullish (+5).
On that basis, VYM and VFLQ can be expected to tread water, more or less. By contrast, varying degrees of bearish outlooks continue to weigh on the prospects for the rest of the field.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.