US Equity Risk Factors Struggle To Offset Broad Market’s Slide

Escaping the pull of market beta is always tough for equities, especially in a year of sharp losses for the broad market. Although some slices of risk factors are doing better than others, financial gravity continues to dominate in 2022, based on a set of proxy ETFs.

Relatively high dividend yield continues to deliver to softest year-to-date decline for our factor opportunity set. Vanguard High Dividend Yield (VYM) is off 5.4% so far in 2022, as of yesterday’s close (Sep. 7). That’s a mild setback vs. the broad stock market’s 15.6% haircut, based on SPDR S&P 500 (SPY).

But it gets worse. The deepest loss in the factor space year to date: large-cap growth stocks. The iShares S&P 500 Growth ETF (IVW) has tumbled more than 22%.

It’s tempting to look for bargains after a sharp market decline and so contrarian-oriented investors with a relatively long-term focus may want to consider the opportunities. Looking at the factor ETFs through a momentum lens, however, suggests that it’s still premature for assuming that a rally of some duration has started.

For some perspective, consider how our factor ETF list stacks up with a proprietary momentum ranking (for details, see this summary). Using the aggregate Signal score as a guide suggests that high dividend yield (VYM) and liquidity (VFLQ) are the best of the bunch – that is, the least worst of the bunch. Both ETFs are currently posting Signal scores of 0, a neutral value. Signal scores range from maximum bearish (-5) to maximum bullish (+5).

On that basis, VYM and VFLQ can be expected to tread water, more or less. By contrast, varying degrees of bearish outlooks continue to weigh on the prospects for the rest of the field.

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By James Picerno