Investor Sentiment Can Drive Factor Performance

The economic environment and investor sentiment can drive factor performance – and savvy investors are taking advantage.

On the recent webcast, Connecting Economic Regimes to Factor Exposure, David Mazza, Head of ETF Investment Strategy for OppenheimerFunds, and Mo Haghbin, Head of Product, Beta Solutions for OppenheimerFunds, discussed factor ETF strategies, including what factors have historically performed best.

Mazza said Oppenheimer Funds identified that the average factor performance and analyzed how it is relative to the broader markets.

“It was very consistent to what one would expect in a period that coincides with increases in inflation and higher GDP growth,” Mazza said. “When risk appetite improves, we see more pro-cyclical factors like size and value do quite well. In fact, size does unbelievable well on average. On the other hand, you see factors that are quite defensive in nature – like low volatility and yield – which do worse.”

What this means, Mazza said, is that investors have an opportunity set that are available to them to leverage these factors should they have views on interest rates.