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Mondial Chart of the week - 17 October 2021
What this chart shows
The chart shows the periods of outperformance and underperformance of three MSCI global equity investment style indices and an equally weighted blend of all three investment styles (yellow line) relative to the headline MSCI World benchmark index since 1999. The style indices comprise stocks of the headline equity universe fitting the characteristics of each investment style. The enhanced value index consists of securities that exhibit higher value characteristics on the basis of a number of valuation metrics (i.e. price to book ratio).
The momentum index is invested in companies with a high degree of price momentum, constructed to capitalise on the continuance of existing trends in the market. Lastly, the quality index consists of companies exhibiting high quality traits (i.e. high return on equity or low leverage). In recent weeks it has been the quality universe that has underperformed. The quality index now has an allocation of 39% to technology stocks and their valuations have been hit by higher yields over the last month as inflation concerns have escalated.
Why is this important?
Whilst the data in this chart only shows performance since 1999, these style indices have been shown to consistently outperform over the long-term. Interestingly, they have all delivered fairly similar returns over the whole period but have followed a different path to get there. Each style index has demonstrated periods of both outperformance and underperformance at different stages.
Therefore, a more prudent approach than riding the wave of just one investment style, and be exposed to heightened volatility, is to have exposure to multiple styles. By doing this, an investor can reduce volatility and drawdowns relative to the headline index whilst still outperforming over the long-term, building in additional diversification levers, and smoothing the investment journey – an approach that we promote and implement.
Source: Bloomberg Finance L.P., Momentum Global Investment Management.
Research Date: October 2021
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By Mondial DubaiWhat this chart shows
The chart shows the periods of outperformance and underperformance of three MSCI global equity investment style indices and an equally weighted blend of all three investment styles (yellow line) relative to the headline MSCI World benchmark index since 1999. The style indices comprise stocks of the headline equity universe fitting the characteristics of each investment style. The enhanced value index consists of securities that exhibit higher value characteristics on the basis of a number of valuation metrics (i.e. price to book ratio).
The momentum index is invested in companies with a high degree of price momentum, constructed to capitalise on the continuance of existing trends in the market. Lastly, the quality index consists of companies exhibiting high quality traits (i.e. high return on equity or low leverage). In recent weeks it has been the quality universe that has underperformed. The quality index now has an allocation of 39% to technology stocks and their valuations have been hit by higher yields over the last month as inflation concerns have escalated.
Why is this important?
Whilst the data in this chart only shows performance since 1999, these style indices have been shown to consistently outperform over the long-term. Interestingly, they have all delivered fairly similar returns over the whole period but have followed a different path to get there. Each style index has demonstrated periods of both outperformance and underperformance at different stages.
Therefore, a more prudent approach than riding the wave of just one investment style, and be exposed to heightened volatility, is to have exposure to multiple styles. By doing this, an investor can reduce volatility and drawdowns relative to the headline index whilst still outperforming over the long-term, building in additional diversification levers, and smoothing the investment journey – an approach that we promote and implement.
Source: Bloomberg Finance L.P., Momentum Global Investment Management.
Research Date: October 2021