So far in 2015 we have seen much more dispersion in the return of different factors—low volatility, momentum, value, increasing dividends, etc. As you can see from the chart below it didn’t really matter what factor you chose in 2014, all of them did well, except for size (small cap). This year has show much more dispersion, from momentum (MTUM ETF up 9%) to high beta (SPHB down 5.78%):
Factor | ETF | 2014 | YTD 7/28/15 |
Value | RPV | 12.21% | -3.17% |
Momentum | MTUM | 14.62% | 9.00% |
Dividends | 15.54% | 0.81% | |
Quality | QUAL | 11.70% | 4.41% |
Low Vol | USMV | 16.33% | 3.64% |
High Beta | SPHB | 12.68% | -5.78% |
Size | IJR | 5.85% | 1.68% |
Standard Deviation of Returns | 3.49% | 4.91% |
Source: Morningstar
We already have a factor rotation model in TUTT and will be expanding the universe and adding a bit of factor rotation to our Core Satellite Strategies to take advantage of this dispersion. The Core Satellite Strategies will keep a fixed 60% allocation to factor/smart beta ETFs but now they will incorporate a rotation model that can take more advantage of dispersion among factors.