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The Oppenheimer Russell Dynamic Multifactor ETFs remain in a “slowdown” regime, resulting from a combination of still-above-trend U.S. economic activity, but decreasing global risk appetite. Our Dynamic Multifactor ETFs remain tilted toward the quality and low volatility factors.
Our leading economic indicators continue to suggest the U.S. economy should grow above trend over the next few quarters. Business and consumer confidence remain high, and activity in manufacturing and construction continues to be strong. While monetary conditions are gradually tightening, the current policy stance is not restrictive, therefore supporting further economic growth.
Despite this continuation of strong U.S. economic data, October saw investors in both developed and emerging markets favor risk-off assets. Equity markets across the United States, Europe, and Asia all finished the month lower as investors took risk off the table amid the growing uncertainty surrounding central bank policy and global growth. This still-weakening global risk appetite affirms our slowdown regime signal and, as such, we remain tilted to the low volatility and quality factors.
Broadly, equities finished the month lower, but more defensive and cheaper stocks delivered excess returns above the Russell 1000 Index. Yield and low volatility stocks added nearly 3% in excess return above the market during October’s sell-off.
As investors shunned the market’s higher-valuation segments, the value factor managed to deliver its highest monthly excess return (+1.43%) since the 2016 election, when the factor outpaced the Russell 1000 index by 3.30%.
Despite quality underperforming during the month, our bottom-up combination once again proved effective, with both multifactor strategies outperforming their respective market indices. The small-cap strategy worked particularly well, delivering 3.78% in excess return during October.
Our Multi-Asset Team will continue to monitor the economic environment and global risk sentiment for signs of regime change, which we will reflect in the potential monthly repositioning of the Dynamic Multi-Factor ETFs.
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Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value. Alternative weighting approaches (i.e., using factor weighting as a measure), while designed to enhance potential returns, may not produce the desired results.
Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect backtested performance. All performance presented prior to the index inception date is backtested performance. Backtested performance is not actual performance, but is hypothetical. The backtest calculations are based on the same methodology that was in effect when the index was officially launched. However, backtested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index. A description of the methodology is available upon request. Past performance does not guarantee future results.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.