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Index IDEA: Quality & low volatility now in favor as US equity volatility rises

On the one-year anniversary of the launch of OppenheimerFunds’ suite of multi-factor ETFs in collaboration with the global index provider FTSE Russell, the firms examined key factors driving US large cap equity market performance over the last year based on performance of the US large-cap Russell 1000 OFI Dynamic Multifactor Index (since inception, 11/7/17-11/8/18). 

As might be expected, the index analysis shows a volatile year for the US equity markets accompanied by a clear shift in factor leadership:

In the period between November 7, 2017 when the index was introduced and May 3, 2018, Momentum and Size were two of the three lead factor drivers for the Russell 1000 Index.

In early May, there was a noticeable shift, with Quality and Low Volatility taking on leadership, consistent with more volatile US equity markets as reflected by the Russell 1000 Index.

Coinciding with the May shift, the Oppenheimer regime model changed to Slowdown, triggering increased target exposure by the indexes to the Quality and Low Volatility factors in accordance with the index methodology. This shift in factor emphasis resulted in strong relative performance for the Russell 1000 OFI Dynamic Multifactor Index for the year ended November 8, 2018. Notably, the Russell 1000 OFI Dynamic Multifactor Index rose 15.7% in this period relative to a 10.1% rise for the Russell 1000 Index. This shift in factor emphasis also resulted in strong relative performance in the US small cap arena, with the Russell 2000 OFI Dynamic Multifactor Index rising 10.8% in the past year relative to an 8.1% rise for the Russell 2000 Index.  

Source: FTSE Russell as of November 8, 2018. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

Mo Haghbin, senior vice president & head of beta solutions product, OppenheimerFunds:

“It’s no surprise that the quality and low volatility factors have performed well in 2018 as the more defensive nature of the underlying securities they represent have historically done well in volatile markets. The shift in factor exposure in recent months to emphasize these factors over others as reflected in the FTSE Russell indexes has benefited overall index performance over the last year.”

Rolf Agather, managing director of North America index research, FTSE Russell:

The ability to provide diversified market factor exposure through a smart beta index while using the market regime signal of Oppenheimer to weight these factors relative to each other has produced very strong relative results for the indexes during a year when we witnessed a clear shift in US equity market leadership.”

For more information on the FTSE OFI Dynamic Multifactor Index Series, go to the FTSE Russell website.



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All information is provided for information purposes only. All information and data contained in this publication is obtained by the LSE Group, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data is provided "as is" without warranty of any kind. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of the FTSE Russell Indexes or the fitness or suitability of the FTSE Russell Indexes for any particular purpose to which they might be put. Any representation of historical data accessible through FTSE Russell Indexes is provided for information purposes only and is not a reliable indicator of future performance.

Views expressed by Mo Haghbin of OppenheimerFunds and Rolf Agather of FTSE Russell are as of November 20th and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.

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