We analyzed each fund’s active returns for the largest equity large cap mutual funds in the US and Europe and provided factors, benchmarks, and idiosyncratic contributions.
- iShares Russell 1000 Growth & Value ETFs were used as benchmarks for the US funds regression
- STOXX Europe 600 was the chosen benchmark for the Europe fund regressions
Europe Growth funds have recorded the worst quarter of the 3Y period of analysis, with on average no over-performance attributed to factor exposures and alpha. The positive tilt to Quality is the main driver of underperformance with a noticeable rotation into negative territory, combined with a continuous drop due to smaller-cap stock selection vs. the benchmark monitored through the Size factor.
Within Europe Value funds, the opposite positive contribution from a short Quality bias has been monitored hitting its highest level for the same period, combined with revenue streams due to the overweighting of Value stocks. A blend of long positions in smaller-cap and short in Low Vol stocks keep driving the performance downward. The decreasing contribution generated by superior idiosyncratic/alpha opportunities has been confirmed, trending down to becoming a cost.
For the top Growth fund performers, negative exposure to value and low vol factors detracted but much of the underperformance during Q2 was due to idiosyncratic/ residual risk. Within the top performing Value Funds, out performance was generated primarily from idiosyncratic sources alongside tilts towards value, size, and quality.