Recent market volatility has highlighted a variety of risks affecting global equities, from tighter monetary policy in the U.S. to slowing growth globally. Investors should understand the impact of these risks on current market dynamics in order to make better informed portfolio decisions.
We begin with an overview of how broad investment styles, such as earnings quality and volatility, have performed over the past 12 months. Using these styles as a foundation, we then present the five strongest price or fundamentally-based factors [“strategies”] over the past 12 months. Finally, we present two stock screens that encompass these five strategies.
Tapping into S&P Global Market Intelligence’s Alpha Factor Library, we identify and develop five strategies that reveal how the current market has responded to a changing economic and monetary background.These strategies include a focus on companies with accelerating earnings growth, improved capital efficiency, and positive price momentum, while avoiding risks associated with price volatility and financial leverage.
Our findings show that while improving growth and return on capital and rising price momentum strategies have outperformed in the current turbulent market environment, high volatility and low interest coverage strategies have underperformed.
Leveraging the insight collected from these five strategies, we constructed two screens: [screen 1] selects stocks that rank best on all five factors, and [screen 2] selects stocks that rank worst on all five factors.
To view these screens and access the full analysis, read our brief Using Alpha Factor Library to Navigate a Turbulent Market.