Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
Napoleon insisted he would rather have his generals be lucky than good. Increasingly, especially when investing in the US stock market, many investors opt for a passive fund, presumably viewing markets through the same prism that managers are really only ever lucky, as opposed to good.
Despite this, some investors continue to attempt to consciously eschew Napoleon’s advice when selecting the operators of the vehicles they select for their money (perhaps wisely, considering how Marshal Grouchy’s indecisiveness cost Napoleon at Waterloo). Instead they look to access investment vehicles that consciously deviate from the broader market. Selection of strategies is undertaken for a variety of different reasons: a preferred investment style; a conscious approval and desire to access the underlying portfolio; or an alignment between the investor and the manager on the macroeconomic outlook.
In this article we look at how different factor indices in North America have performed in different economic and market scenarios. We then examine which US-focussed trusts have offered the closest correlation to these factor indices in the recent past. Understanding the impact that broader economic trends have had on the performance of factors – and, by extension, on trusts that seem to operate in close alignment with those factors – can help us to understand and contextualise historic performance. It may also give us some insights on how to position for any anticipated future environment.
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