Satrix style tracker

What drove performance in Q4 2018?

| 17 January 2019


Both Price Momentum and Earnings Momentum endured another torrid quarter. With global equity markets experiencing their worst correction in years, these cyclical strategies are generally expected to experience some underperformance given the context. Earnings revision in particular suffered significant underperformance with both legs contributing to the return spread, that is, companies with positive earnings sentiment sold off, whereas companies with negative earnings sentiment rose. This outcome is not typical of the earnings revisions factor, which traditionally fulfils a defensive role within a broad Momentum strategy. Despite some recovery in December, Price Momentum produced the worst return spread overall, with -18.9% over 2018, while Earnings Momentum delivered a weak -12.6%.


After Value had strung together two strong quarters in both Q2 and Q3 of 2018, the fourth quarter saw a difficult environment for both Price to Book and Dividend Yield. Interestingly, deep to mid-value factors such as Price to Book and Price to Earnings seemed largely to avoid significant pain from the cyclical sell-off over the quarter, whereas more defensive value signals showed some divergence: while Dividend Yield struggled, Price to Cash flow performed well. This outcome is not unfamiliar as the heterogeneous nature of the Value family often brings varied performances from underlying sub-value factors. As a composite, Value performed marginally negatively over the period, although this was largely due to November’s harsh sell-off.



Traditionally, a risk-off environment should provide a fertile breeding ground for Quality factors. However, only Return on Equity experienced this and not Debt to Equity. Return on Equity, for a second year running, offered the highest returns among factors, as investors continued to favour stocks with high profits in order to mitigate macro concerns. Stocks that deliver sustainable profits tend to have durable competitive advantages that are not impacted by economic headwinds.

Debt to Equity continued to bewilder us, particularly regarding its supposed role in providing protection during market stresses. Overall, this factor delivered poor return spreads over 2018, and showed only sporadic bursts of defensiveness during market 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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