Satrix style tracker Q2 2019

What drove performance in Q2 2019?

| 1 August 2019

Momentum

The Momentum signal continues to show a persistently strong recovery since December 2018, along with general market sentiment which has begun to entrench a trend after a period of rotating market leadership. As such, Price Momentum is now positive over a 12-month period for the first time since the second quarter of last year, illustrating what could be termed ‘the aggregative nature’ of its recovery.

Earnings revisions has shown more cyclicality than expected, however over the prior quarter its behaviour is more in line with its traditional defensive role within broad Momentum strategy – offering a more scaled-back cyclical exposure than its Price Momentum cousin. Over 12-months however, the strategy is still underperforming due to the significant underperformance over the final quarter of 2018.

Momentum

Value

After Value signals domestically delivered an overall strong 2018 as well as the first quarter of 2019 performance, the factor saw some profit taking and rotation into Momentum strategies. The more defensive Dividend Yield strategy felt most of the pain as the cyclical environment saw a fall in investors’ preference for high-yielding securities over the quarter.

Price to Book struggled over the quarter but still maintains a positive 12-month spread, given a fantastic recent run. Once again, a sector effect cannot be ignored as the positive market sentiment largely focussed on financial and industrials counters (less value exposure) rather than resources (more value exposure).

Value

Quality

In a reversal of fortunes, Quality continues to experience profit taking as the equity market turnaround has shown a preference for cyclical shares. This is after an extended period of a risk-off environment which provided a fertile ground for Quality factors, in particular profitability factors such as Return on Equity.

Investors have been favouring stocks with high profits in order to mitigate macro challenges, and even though economic sentiment has recently been soft domestically, global sentiment has buoyed cyclical stocks and ignored stocks that have durable competitive advantages. Debt to Equity delivered a negative return over the quarter, as the factors defensive role continues to be tested during both periods of corrections and recovery.

Quality

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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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