Small-Cap Value, Liquidity Top US Equity Factor Returns In 2019

US stocks in the small-cap value bucket continue to lead the performance list for the major equity factors for year-to-date results (through Feb. 27), based on a set of exchange-traded funds. In close pursuit is the so-called liquidity factor, which is currently the second-strongest performer this year.

The iShares S&P Small-Cap 600 Value (IJS) is currently posting the best year-to-date factor gain. IJS is ahead 17.5% so far in 2019, modestly above the second-best return: a 16.6% rise for Vanguard US Liquidity Factor (VFLQ), which favors companies that exhibit relatively low levels of trading liquidity.

Note that all the major equity factor buckets are posting gains so far this year. The softest advance is a 9.4% return for iShares Edge MSCI Minimum Volatility USA (USMV). The second-lowest performer: iShares Edge MSCI USA Momentum (MTUM), which is up 9.8%.

Across-the-board gains for US equity factors is no surprise when you consider that the broad stock market is posting a solid year-to-date return. SPDR S&P 500 (SPY), a widely followed proxy for US equities overall, is up a strong 11.7%. The broad equity beta’s influence, in other words, is no trivial factor this year.


Focusing on the technical profile of the factor ETFs shows that all the funds are currently trading above their 50-day averages, a performance that marks a reversal from the weak results in late-2018. A typical example can be found in this year’s strong rebound in iShares S&P Small-Cap 600 Value (IJS), as shown in the chart below.


Although the 2019 revival in factor ETF prices has been impressive, one widely monitored hurdle has yet to be reached: a rise in the 50-day average above the 200-day average. For now, this technical profile for all the factor ETFs listed above  continues to reflect a 50-day average that’s below the 200-day average. Ditto for SPY, the broad market ETF proxy. Until the 50-day average rises above its 200-day counterpart, some analysts cite this as a reason to remain cautious on assessing the prospects for a continuation in this year’s rally.

Disclosure: None.

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