All told, factors enjoyed their second best year since the GFC 2-strength we expect should continue through 2023.įactors performed well over Q, particularly equity value and qualityĮxhibit 1: Quantitative Solutions long/short factor returns The equity value and quality factors led gains as markets gravitated toward stocks with strong underlying fundamentals ( Exhibit 1). The factors that we invest in performed well throughout 2022, closing out the year on a high note even as market currents shifted across equity, fixed income and commodities. With seemingly nowhere for investors to hide in traditional assets, factors’ strong performance and diversification benefits stood in stark contrast. And traditional cross-asset class diversification failed: 2022 was the only year since 1928 in which both stocks and bonds declined more than 10%. equities in 2022, while fixed income markets declined more in aggregate globally than in the U.S. Regional diversification provided investors virtually no protection: Global equity markets declined just as much as U.S. Treasuries experienced their worst year of performance since 1928 for corporate bonds, it was the second worst year. The S&P 500 suffered its worst year of performance since the 2008 global financial crisis (GFC) and its seventh worst since 1928. However, on the whole, 2022 was one of the most challenging years on record for traditional investors. Global equity markets found relief in the fourth quarter as investors welcomed signs that inflationary pressures might be moderating. ![]() We believe equity factors, such as value and quality, are well supported by current valuations, and other factors, such as merger arbitrage and macro carry, appear modestly attractive. We maintain our positive outlook for factors in aggregate.Macro factors gave back gains for a second consecutive quarter as a number of trends exhibited early in 2022 reversed course or bounced about through the end of the year.The merger arbitrage factor also hit new highs and continued to serve as a diversifying source of returns even in volatile equity markets.Equity factors continued to climb, led by value and quality, with an aggregate blend of factors extending all-time highs in our data set going back over three decades.Factors performed well and closed out an extremely strong year, highlighting their potential diversification role relative to market betas, as traditional asset classes suffered one of the worst years in history.
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