2019: Equities in a stylish nutshell
Most equity investors were taken by surprise when the MSCI World index rose more than 27 % last year. Now, with all analysis in, it’s time to look at the numbers and hopefully learn something.
The MSCI World index rose more than 27% in USD during 2019, and the index ended the year near all-time high. Most equity investors did not quite see this coming, and the strong performance in Q4 was probably fueled by investors joining the party after macro tensions around the US/Chinese trade war and because Brexit worries eased somewhat.
How did the different equity styles perform in 2019?
The world index fell in May and August, but the rest of the year posted good returns with very low risk. With all analysis in, it is time to look at the numbers: How did the different equity styles perform?
The Systematic Active Equity group at DNB has defined five styles. We sort and categorize companies according to their exposure to:
- Value,
- Growth,
- Profitability,
- Quality and
- Momentum.
This means that we can analyze the effects style had on the MSCI World Index.
We analyze the numbers in quintiles
We use quintiles[1] to do this. This means that we rank MSCI world index members on style exposure every month, and track the performance of five groups. Quintile 1 follows the performance of the companies with lowest style exposure. Quintile 5 has the companies with highest exposure. This gives us this view of performance of Risk Quintiles in 2019:
The graph on the right shows performance of Risk Quantiles, and the left hand graph shows average weights in these Quantiles. As you might expect in a strong equity market, it appears that high risk names performed significantly better than the low risk names this year. The performance spread between Q5 and Q1 was more than 10 percentage points.
