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Fundamental shifts in factors, are they here to stay?



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Let’s introduce three Exchange Traded Funds: the SPDR S&P 500 ETF Trust (SPY), the Invesco S&P 500 Equal Weight ETF (RSP), and the iShares MSCI USA Value Factor ETF (VLUE).

The SPDR S&P 500 ETF Trust (SPY) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index.

The Invesco S&P 500 Equal Weight ETF (RSP) is based on the S&P 500 Equal Weight Index.

The iShares MSCI USA Value Factor ETF (VLUE) seeks to track the performance of an index that measures the performance of U.S. large- and mid-capitalization stocks with value characteristics and relatively lower valuations.

SPY has outperformed RSP and VLUE since 2004:

As expected, correlations between this ETF are high:

Since March 2020, the dispersion between the RSP and VLUE daily returns minus SPY has increased:

In 2020 SPY has continued beating RSP and VLUE by far (14.1%, 7.7% and -3.0% YTD Nov 30th):

But if we zoom in to November 2020: RSP outperformed SPY (14.3% vs 10.9%) and VLUE outperformed SPY (16.4% vs 10.9%). Both spreads +3.4% (RSP – SPY) and +5.5% (VLUE – SPY) exceed their respective biggest records for monthly returns differences since 2014 by more than 50%.

Is this the beginning of a reversal in the drift or simply a small correction? Similar analysis with different results can be done using other ETFs: Momentum Factor (MTUM), Low Volatility Factor (USMV), Technology Sector (XLK)…

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