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Index IDEA: FTSE Russell factor indexes show decline in momentum outside the US

Momentum has had less of an influence in emerging and non-US developed markets in the last six months according to the FTSE Comprehensive Factor Indexes. The new indexes, introduced in 2015 and underlying a series of exchange traded funds (ETFs) offered by Deutsche Asset & Wealth Management, are designed to capture a broad set of five factors recognized as contributing to equity market performance; Momentum, Quality, Size, Value and Low Volatility. Each index is rebalanced in March and September to ensure it accurately reflects the influence of these five market factors on the markets it represents.

FTSE Russell compared the active factor exposures for the FTSE Emerging Comprehensive Factor Index and the FTSE Developed ex-US Comprehensive Factor Index on March 21, 2016 (the previous index rebalance date) to the active factor exposures for these indexes on September 19, 2016, the most recent rebalance.

Rolf Agather, Managing Director of North America Research, FTSE Russell:

“There are a number of single- and multi-factor indexes that have been shown to produce index returns in excess of the broad market benchmark index over the period of our analysis.* And to the extent that the behavior of market factors is cyclical, many indexes are now combining multiple factors to gain diversification. Our new comprehensive factor indexes are designed to  diversify the index exposure across our five target market factors in a transparent way.”

For both indexes, active exposure to Momentum decreased over the past six months. In the FTSE Emerging Comprehensive Factor Index, this decrease was primarily offset by an increase in Value. And in the FTSE Developed ex-US Comprehensive Factor Index, the decrease was largely offset by an increase in Quality.

Rob Bush, ETF Strategist, Deutsche Asset Management:

“The FTSE Comprehensive Factor Indexes tell an interesting story about the rising influence of Value and Quality and the corresponding decrease of Momentum in non-US developed and emerging markets in the last six months. Having said that, factor performance is cyclical and hard to time, hence our analysis of more diversified long term performance of a variety of market factors.” 

The FTSE Russell Comprehensive Factors Indexes are part of the FTSE Global Factor Index Series. Visit our webpage for a closer look at smart beta and factor indexes.

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* Visit the FTSE Global Factor Index Series page to find the most recent quarterly fact sheets including historical performance compared to each of their corresponding broad market benchmark.
 

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Views expressed by Rolf Agather  of FTSE Russell and Rob Bush of Deutsche Asset Management are as of October 11th and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the London Stock Exchange Group.

All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.

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