Factors go on the defensive in turbulent Q2

Global equity markets went into a protective crouch last quarter, and factor performance followed suit. Yield, Low Volatility and Value factors held their lead over Quality in most developed markets as investors rushed into steadier, less cyclically sensitive stocks and fled pricier growth stocks.

In stark contrast, nearly all EM factors lagged except (small) Size. Regional return dispersion was greatest within Size, which ended the quarter as a top performer in Japan but was the biggest laggard in the UK.

As we highlight in our latest Equity Factor Insights report, the continued outperformance of the Low Volatility factor in all but EM is unsurprising given the extreme turbulence plaguing markets this year. As the chart below illustrates, annualized one-month volatility spiked across equity markets in Q2, after markedly easing in the previous quarter, especially in the US.

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