KNO - Equity Factor Report - Q4 2024: Growth And Momentum Take Back Leadership

2025-01-22 05:25:00 ET

Summary

• In a stark reversal from the prior two quarters, among Russell Investments Factor Portfolios, Global Large Growth and Momentum outperformed the benchmark for Q4 2024 while Global Large Cap Low Volatility, Value, and Size underperformed.
• During the fourth quarter, the decrease in correlations between the Momentum factor and the Low Volatility factor in Russell Investments Factor Portfolios reversed sharply — increasing from -0.6 0 +0.2.
• Using bond returns to refine equity momentum signals showed a premium in long/short portfolios but not in long-only portfolios.

Overview

With an end to the U.S. presidential election and increasing expectations of strong economic growth, deregulation, and lower taxes, the Russell 1000 Index finished the quarter with a robust 2.7% return. Conversely, Developed ex-U.S. Large Cap and Emerging Markets declined by -7.4% and -7.8%, respectively, amid political instability in France and Germany along with uncertainty about the impact of potential U.S. tariffs. This divergence extended to small cap stocks as well, with the Developed ex-U.S. Small Cap Index declining by -7.8% while the Russell 2000 Index increased slightly by +0.3%. The Russell 2000 Index rose sharply in November, only to give up those gains in December after the Federal Reserve signaled a slower pace of interest rate cuts.

When considering Russell Investments' global factor portfolios (RFPs), Global Large Cap Growth and Momentum outperformed the benchmark for the quarter with positive excess returns of +2.5% and +1.1%, respectively. Conversely, the Global Large Cap Low Volatility, Size, Value, and Quality portfolios underperformed for the quarter with excess returns of -1.4%, -1.0%, -0.8% and -0.2%, respectively. The performance of the factor portfolios in the fourth quarter was a contrast to the prior quarter, where Value and Low Volatility were the outperformers....

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