Under the Hood of the 2 Top-Performing Factors YTD

The two top-performing factors stood out during the first half for impressive outperformance over the benchmark.

The S&P 500 High Beta Index and the S&P 500 Growth Index handily outpaced the parent S&P 500 during the first six months of 2023. High beta was up 23.2%, while growth was up 21.2%, as of June 30. Meanwhile, the benchmark climbed 16.9% during this period.

High beta and growth outperformed in an environment in which mega-caps dominated performance. High beta and growth were the only two factors to outpace the benchmark in the first half.

See more: “Moving Averages: S&P Finishes June Up 6.5%

High beta, tracked by the Invesco S&P 500 High Beta ETF (SPHB), was lifted due to its heavy tilt toward the information technology sector. The information sector returned 42.8% during the first half, beating all other sectors.

High beta offers the greatest exposure to the information technology sector among all factor indexes. The information technology sector comprises 44% of the S&P 500 High Beta index, while the benchmark S&P 500 gives the sector a 19% weight as of the end of May.

Look to the Quality Factor for More Defensive Positioning

Interestingly, the third best-performing factor was quality. The S&P 500 Quality index was up 15.7% during the first half, nominally underperforming the benchmark.

Quality, tracked by the Invesco S&P 500 Quality ETF (SPHQ), is a defensive factor, but it still tends to capture more upside than low volatility strategies. Therefore, the quality factor also captures more downside than the low volatility strategies — albeit still less downside than the broader market.

Notably, in the first half, the worst-performing indexes in S&P’s factor index family were high dividend, low volatility high dividend, low volatility, and momentum. The four factors are in the red year-to-date.

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