Regime change takes root in Factorland

The rotation away from pricey defensive factors (notably Quality) into their cyclically sensitive counterparts (led by Value) went into overdrive in Q1 2021 as markets recalibrated expectations for a quicker post-crisis economic recovery.

As shown below, Value, Yield and Size strongly outperformed across markets in the quarter, while Quality and Momentum lagged. Japan led the relative gains in the former three factors, having sat out the rotation that began elsewhere in the previous quarter.

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