Realised factor premiums much stronger in Emerging markets

  • Global Developed markets experienced notable reversals in factor premiums since December 2016. So far in 2017, Value style factors recorded negative premiums while Growth and Momentum style factors delivered positive premiums. The YTD factor premium experience is contrary to calendar 2016 when value style factors delivered very strong premiums across the developed markets.
  • The picture was quite different in Global Emerging Markets though where YTD factor premiums were positive across most styles. In relative terms, Growth, Momentum and Size stood out, delivering very strong positive premiums.
  • From a trend perspective, factor premiums in general have been deteriorating in Developed markets while they have been strengthening in Global Emerging markets.
  • Rolling 36 month factor premiums in EM are at the higher end of the historical observed range.

Continuing style rotation with Growth dominating Value in DM

For Developed markets, all popular growth factors delivered positive premiums with IBES 12m Growth delivering the highest return since the beginning of 2017. Value factors experienced performance reversals, realising negative returns so far in 2017 compared to a very strong performance in 2016. Similarly, Momentum factors delivered positive return premiums in 2017 compared to negative returns in 2016. In 2017, 12 month Momentum has produced strongest premiums of 1.3% while 6 month Momentum was slightly negative. Elsewhere, quality factor premiums were mixed with Low Accruals and Stable Sales Growth producing slightly positive results while Stable Earnings, Returns and Leverage delivering negative premiums. Returns to market beta factor was positive 1.3% as high beta stocks outperformed low beta stocks.

Global Emerging Markets produced highest factor return premiums

Over a 12-month period to September 2017, Global Emerging markets produced strong and positive return premiums across all popular style segments of Value, Growth, Size, Momentum and Quality. Strong factor premiums were observed across EBITDA to Price, IBES FY1 Revisions, Momentum (12 month), Size, and Return Stability with 5.6%, 5.9%, 5.2%, 4.9%, 6.5%, and 4.9%, respectively. On the other hand, market beta was heavily penalised with a negative 4.6% return.  

Over a longer period of 36 months, Global Emerging Markets again produced the best factor premiums across most style segments with Value-based factors being most positive, followed by Quality and Growth. Dividend yield, 3 month Earnings Revisions and Stable return factors were amongst the best performing factors. From a historical perspective, rolling 36 month factor premiums are at the high end of the range as shown the Historical Factor premium chart below.