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Oppenheimer Russell Dynamic Multifactor ETFs remain in a “slowdown” regime, resulting from a combination of still-above-trend U.S. economic activity and decelerating global risk appetite. Our Dynamic Multi-Factor ETFs are tilted toward the quality and low volatility factors.
Our leading economic indicators continue to suggest that the U.S. economy should grow above trend over the next few quarters. Recent headline GDP readings have come in above estimates and consumer confidence remains strong. However, recent business surveys continue to register a deceleration in manufacturing activity. Monetary conditions, as indicated by the yield curve, continue to imply a future slowdown in growth. Overall, the economic environment is still indicative of above-trend growth in the medium term.
While many equity markets around the world registered positive returns over the period, U.S. indices once again outpaced most international peers. Fixed income markets saw a similar dichotomy with developed and emerging market indices lagging their U.S. counterparts. Overall, global risk appetite did not rise enough to break through its medium-term trend, and thus we are still registering a deceleration in global market sentiment. This deceleration, combined with current above-trend economic indicators, confirms the identification of a slowdown regime.
April saw all individual single factors underperform the broad market. Factor investors might be feeling a sense of déjà vu given the last time we observed this was in April 2018.
Year to date, the size factor remains at the top of the factor rankings, and is the only single-factor strategy outperforming the market. Size has been able to hang on to the strong lead generated in January, when equities rebounded sharply from the Q4 selloff. The size factor may simply be exhibiting a classic mean reversion trade, as the current rebound has benefitted those equities that saw the deepest drawdowns to finish 2018.
The slowdown regime recorded mixed results across the two multifactor strategies. The combination of low volatility and quality lagged in large caps, but led to modest outperformance in small caps over the 1-month period.
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