Satrix style tracker Q1 2018

What drove performance in Q1 2018?

| 25 April 2018

Momentum

Cyclical sectors performed strongly in January and February, while in March the broader decline in risk appetites saw more defensive areas outperform. This saw the Price Momentum signal correct during March, as rotation and some profit taking dampened a generally positive Price Momentum factor during 2018, primarily driven by the perceived increased risk to global growth.

Earnings revisions (a sub-component of headline Momentum) on the other hand, has once again not performed in line with Price Momentum, generating negative returns as poor earnings sentiment failed to deliver in an environment of high levels of corporate uncertainty.

Value

After a collapse in Price to Book in the final quarter of last year, this signal continued its struggle in an environment where cyclical and defensive drivers tussled for the lead. Investors fled shares which offered deep value and, rather, continued to flock toward more defensive shares. In particular, this factor struggled during February when cheaper (based on Price to Book) SA Resource shares fell 4.8%.

The ‘flight to safety’ environment benefitted stocks with strong dividend yields, as – much like the greater part of 2017 –  investors could no longer ignore the value of high-yielding shares following the Steinhoff news flow.

Quality

After a stellar 2017, Return on Equity experienced another strong quarter as investors continued to favour stocks with defensive characteristics. Despite largely pro-cyclical domestic sentiment, global macro concerns dominated the investor mindset and subsequently weighed on the local share market. The ensuing environment continued to suit companies with high returns to equity.

Interestingly, Debt to Equity has started to establish its more traditional role of providing protection during market stresses, as this factor has generated positive returns in the first quarter. Over the previous few quarters, this factor has typically shown only sporadic bursts of defensiveness, but has largely disappointed during market.

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