This week we'll be highlighting Size factor, which our Factor Profile tool is currently flagging as "Extremely Overbought" in our global model, and "Overbought" in our US model.
As a reminder, Size is defined as the natural logarithm of market cap for each company. A negative return for Size means that smaller cap stocks (those with negative exposure to the Size factor) fared better.
On March 23rd, we pointed out that Size had seen a major sell-off and was "Extremely Oversold" at -2.59 standard deviations on a normalized basis. Since then, we've seen large caps bounce back in a very material way, rocketing past "Neutral" territory, taking a breather towards the end of June, and then continuing its rally up to today.
- Globally, we can see that since 3/23, Size is up 0.75% on a cumulative basis.
- Looking at the normalized chart, the factor is now +2.06 standard deviations above the historical mean.
- This is higher than the previous trailing-twelve-month peak of +2.04 SD above the mean on May 17th.
- In the US model. we see a similar shape to the curve as in Worldwide, except the factor didn't hit the same highs in mid-May on a normalized basis.
- Still, the factor has enjoyed a rally up to +1.51 SD above the mean, firmly in "Overbought" territory.
As one of the "Big 3" factors that the market trades around (the other two being Beta and Value), it's important to keep tabs on Size and understand the impact a reversion to the mean may have on your portfolio.
If you'd like to see what Size or any other factors look like in your portfolio's performance and risk profile, or would like to better understand how we measure the relationships between factors, please don't hesitate to reach out.