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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. However, economic momentum is slowing across several parts of the economy. While consumer confidence remains high, it has been deteriorating recently. Business surveys point to meaningful deceleration in manufacturing activity. Housing markets remain soft, but have recently stabilized. Monetary conditions continue to tighten, as indicated by ongoing flattening of the yield curve. The current policy stance is now close to neutral. Overall, while the environment is weakening, it is still indicative of above-trend growth in the medium term.
Global asset prices were mixed in February. While most global equity indices posted modest gains, fixed income returns were less uniform. Outside of the United States, many developed and emerging market fixed income indices lagged over the period. 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.
February was generally favorable for factor returns, with four out of six single factors outperforming the Russell 1000 Index over the period. Factor returns showed relatively little dispersion, with all single factors finishing within 72 basis points (bps) of the broad market, the tightest spread since September 2018.
The slowdown regime delivered outperformance in large caps with the Russell OFI 1000 Index returning 146 bps above the Russell 1000 Index. This outperformance did not carry over into small caps as momentum and size, factors not overweighted in a slowdown regime, were the only two small-cap factors to outperform the Russell 2000.
Bottom-up factor construction once again proved its merits, with the Russell 1000 OFI Index outperforming both the quality and low volatility single factors. An equally weighted top-down combination of these two single-factor strategies would have returned 3.96%, or 89 bps less than the large-cap multifactor index.
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.
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