The Oppenheimer Russell Dynamic Multifactor ETFs moved into a “slowdown” regime, resulting from a combination of still-above-trend U.S. economic activity, but decreasing global risk appetite. Our Dynamic Multifactor ETFs are tilted toward the quality and low volatility factors.
Our leading economic indicators suggest that the U.S. economy should continue to 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, and is therefore supportive of economic growth.
Volatility has increased materially over the past two months, as global credit spreads have widened and equity returns have lagged. In turn, the risk-adjusted performance of riskier assets has dipped below its medium-term trend. Thus, our market sentiment indicator decelerated, suggesting weakening global risk appetite.
Factor Performance
With the exception of size, which represents smaller companies, every factor had negative performance in March. Smaller companies outperformed the market by more than 2.5%, bucking a medium-term trend of disappointing performance from the factor. Larger companies outperformed small caps significantly over the past few years, and their valuations expanded materially, drawing investor attention to less-bid-up small cap stocks as volatility came into focus.The yield factor also outperformed the market in March. Rates rose swiftly in January and February, but in March investors moved into bonds, and long rates, in particular, fell. With rate pressures easing, investors gravitated toward dividend-oriented securities.
Despite tilts to laggards in momentum and value, our dynamic multifactor ETFs outperformed considerably in March. A tilt to the size factor drove this outperformance, an example of how bottom-up factor allocation can deepen factor tilts and potential for improved excess returns.
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 multifactor ETFs.
OppenheimerFunds is not undertaking to provide impartial investment advice or to provide advice in a fiduciary capacity.
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. Past performance does not guarantee future results.
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