Satrix style tracker Q3 2018

What drove performance in Q3 2018?

| 2 November 2018

Momentum

Both Price Momentum and Earnings Momentum endured a tough quarter. Given that broad equity indices have been down in absolute terms over the period, these cyclical strategies can be expected to experience some underperformance. Whereas previous quarters saw Earnings Momentum (a sub-component of headline Momentum) and Price Momentum exhibit divergent performances, during Q3 we saw synchronised underperformance as investors disregarded companies with positive earnings sentiment. Typically however, earnings revision encompasses a more defensive component, and we expect Earnings Momentum to fulfil its role going forward in a broad Momentum strategy. Year-to-date Earnings Revision has been flat, while Price Momentum’s performance has been weak.

Value

Value has strung together two strong quarters after a poor Q4 2017 and Q1 2018. Deep value factors such as Price to Book and Price to Earnings seemed to rekindle its 2016 performance where cyclical value was favoured. To some extent the unwinding of Momentum has benefitted these cyclical value measures in the short term, however should macro uncertainty continue and deepen, we may see a shift toward more defensive Value or Quality strategies. Dividend Yield (a strategy which focuses on high dividend paying stocks) in particular experienced a corker of a quarter, as the environment was primed for stocks who provided more defensive type of Value.

 

Quality

The risk-off environment provided fertile ground for Quality factors in the third quarter. Return on Equity has continued to experience strong signal strength year-to-date, as investors have favoured stocks with defensive characteristics. Macro concerns continued to weigh on risk appetites, which has compelled investors to seek companies that return high profits, despite macro headwinds.

Debt to Equity has continued to incrementally add positive returns, and has started to establish it’s more consistent and traditional role of providing protection during market stresses. Pre-2018, this factor typically showed only sporadic bursts of defensiveness, but largely disappointed during periods of corrections.

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Satrix Managers (RF) (Pty) Ltd (Satrix) a registered and approved Manager in Collective Investment Schemes in Securities and an authorised financial services provider in terms of the FAIS. Collective investment schemes are generally medium- to long-term investments. Unit Trusts and ETFs the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to it being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The index, the applicable tracking error and the portfolio performance relative to the index can be viewed on the ETF Minimum Disclosure Document and/or on the Satrix website. Performance is based on NAV to NAV calculations of the portfolio. Individual performance may differ to that of the portfolio as a result of initial fees, actual investment date, dividend withholding tax and income reinvestment date. The reinvestment of income is calculated based on actual distributed amount and factors such as payment date and reinvestment date must be considered. If the fund holds assets in foreign countries it could be exposed to the following risks regarding potential constraints on liquidity and the repatriation of funds: macro-economic, political, foreign exchange, tax, settlement and potential limitations on the availability of market information.
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