Factor Market Regime - Update

With the ongoing fiscal and monetary expansion in the face of the rising delta variant of Covid-19, the markets of 2021 continue to be an extension of the theme seen during the second half of last year. In this article, we re-investigate the market factor relation structure using Premialab Pure Factors® as an independent representation of the consensus implementation across asset classes.

Summary

  • Most Trend factors delivered positive performance during Covid Period and provided much welcomed diversification.
  • Post-Covid, the overall risk structure of markets continues to remain reduced in dimensionality, with defensive and cyclical clusters within asset classes sharing more overlap.
  • Looking ahead, the increased negative overlap between Equity Quality and Value factors could become a key risk factor for Growth funds performance in the coming months.
  • Tightness in commodity markets has pushed curves increasingly into backwardation and past the commodities’ historical average levels.

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