Report: April 2023 Factor Performance Analysis

Alex Lustig | May 15, 2023

Quality, Yield and Dividend Growth stocks outperform

Market Background

Equity markets were relatively neutral following a strong first quarter. The US returned about 1%, while Europe and the UK led the group at 3.5%, and Emerging Markets lost about 60bps overall.

Although Europe and the UK saw mixed signals for Quality subfactors, overall, they outperformed globally, especially high-quality companies that showed stable earnings growth.

Investors focused on Yield alongside Quality, and surprisingly not Value (apart from the UK). Growth still underperformed, however stocks with a growing dividend over five years outperformed.

In developed markets inflation remains an issue due to rate increases, causing turmoil in the banking sector. The 2nd, 3rd and 4th largest bank failures in US history occurred within 6 weeks raising concerns about potential future hikes to the federal funds rate, which now stands at 5-5.25%.

The US economy is showing signs of cooling as inflation dipped to 4.9% in April, declining for a 10th straight month. This is in line with last week’s signal by the Federal Reserve that it will likely pause its aggressive rate hike seen over the past 14 months. Investors and central banks await upcoming inflation data releases on May 16th in Canada, and May 24th in the UK.

Natural Gas futures stabilized at $2.3/MMBtu and Crude Oil futures remained stable at $75.65/ barrel.10-year treasury yields in the US increased by 0.11 percentage points to 3.59%, continuing the same zig-zag pattern between 3.5% and 4% seen since October 2022. 10-year GILT also increased to 3.82%, however, the German 10-year bonds remained stable at 2.3%.

Gold also slightly increased by 72bps to $1,982/TOz and Bitcoin continues its ascent, falling short of $30,000/BTC from lows of $16,000/BTC at the start of the year. Layoffs, bankruptcies and legal troubles riddled the cryptocurrency industry as regulators continue to contradict each other on whether crypto assets act as a commodity or need to be registered with the SEC as securities. However, Bitcoin still outperformed the MSCI Europe index this month at 4.71%.

Factor Summary

  • US Equities: Quality, Size and Yield outperformed, most Growth subfactors underperformed and Volatility underperformed significantly.
  • Europe: Yield outperformed, Value and Growth were market neutral (except for dividend growth), Quality was mixed and Volatility underperformed.
  • Emerging Markets: Like Developed Markets, Yield outperformed, followed by Value. Traditional growth underperformed and Volatility underperformed significantly.
  • Canada: Mirrored US and Europe, Quality and dividend growth outperformed significantly. Outperformed US equity markets.
  • UK: Quality largely outperformed, especially sales/earnings growth stability. Volatility underperformed again.

US Equities

Investors primarily favored high-quality stocks this month, yet also focused on companies with large market caps and relatively high dividend/shareholder yields.

The Fed’s decision to continue raising the federal funds rate past the 5% threshold likely impacted the outperformance seen by large-cap stocks and companies with a high dividend yield. The remaining impacts of this decision on factor performance trends will likely be seen in the coming months.

While traditional measures of Growth (like sales growth and earnings growth over the past five years) slightly underperformed this month, other aspects of Growth such as dividend growth and forecasted growth outperformed this month alongside Quality.

Volatility stocks continued underperforming in April, and US investors continued favoring Quality and Growth factors. The 40-bps outperformance in short-term momentum captures the shift from Value in 2022 to Quality and Growth in 2023 so far. Quality outperformed from several perspectives this month regardless of whether it’s defined by net profit margin, return on equity, stable earnings growth/sales growth, or low gearing.

Figure 1: April 2023 US Factor Performance (sector adjusted)
Source: Investment Metrics, a Confluence company

European Equities

Europe outperformed the US by 2.8% and continued to outperform the other four regions featured in this report. However, like the US, investors favored Yield above all else, mainly in the form of dividend yield. Growth remained market-neutral apart from dividend growth, which outperformed alongside Yield.

Quality performed differently as companies with a high return on equity and net profit margins underperformed in Europe. Stocks with stable earnings/sales growth slightly outperformed although Quality remained relatively market neutral this month.

Excluding the mixed signals from Quality, Europe performed similarly to the US from a factor standpoint for the second consecutive month. Value remained neutral, Yield and dividend growth outperformed, while Volatility underperformed again.

Figure 2: April 2023 Europe Factor Performance (sector adjusted)
Source: Investment Metrics, a Confluence company

Emerging Markets Equities

For the first time this year, factor performance patterns in Emerging Markets began to line up with the trends seen in Developed Markets.

Like the US and Europe, investors preferred companies with a strong dividend yield in Emerging Markets yet found opportunities in value stocks as well. Stocks with favorable Sales to Price and Book to Price ratios outperformed the market.

Traditional measures of Growth also underperformed, as in Developed Markets, and Volatility continued to underperform by a significant margin on a month-to-month basis.

Factors in Emerging Markets generated larger premiums/discounts to market performance this month, compared to Q1, where factors remained relatively market neutral.

Figure 3: April 2023 Emerging Markets Factor Performance (country and sector adjusted)
Source: Investment Metrics, a Confluence company

Canadian Equities

Canadian factor performance in April matched the US and Europe, with the exceptions of Value and Yield remaining relatively flat.

Quality and dividend growth continued to outperform in Canada, as reflected in the Momentum 12-1 performance of 3.6% as well as net profit margin and dividend growth.

The data suggests Canadian investors are slowly beginning to shift away from 2022’s defensive positioning in Value and Yield, focusing cautiously on stocks with favorable high-quality metrics and low volatility as well as high anticipated dividend growth.

Canadian stocks outperformed the US on a broad perspective by 1.5%. Canada’s worst- performing subfactor, daily volatility over one year, returned 1.7% in the month, nearly outperforming sales growth stability in the US which led the region at 2.1%.

Figure 4: April 2023 Canada Factor Performance (sector adjusted)
Source: Investment Metrics, a Confluence company

UK Equities

The UK equity market rebounded in April, primarily with a focus on low-geared stocks with stable earnings and sales growth, as well as favorable Value and Yield exposures.

The UK marginally underperformed Europe at a market return of 3.5%, while outperforming the rest of the regions reported.

However, Growth companies continued to underperform in the UK, as opposed to other regions this year. Investors clearly maintained their defensive positioning, favoring high-quality stocks with stable earnings and sales growth, while avoiding volatility. The lack of dividend growth outperformance makes UK investors stand out, as investors anticipate and favor companies with growing dividends.

Figure 5: April 2023 UK Factor Performance (sector adjusted)
Source: Investment Metrics, a Confluence company


Each factor’s performance is based on the relative performance of its top 50% of stocks by market cap, compared to the overall market. The Size factor uses the top 70% of stocks, as the only exception. For example, for the book-to-price factor, we determine the period’s performance of the basket of stocks with the highest book-to-price values, relative to the total market.

Each factor is analyzed independently, market and fundamental data are adjusted to enable sector-average (within each country) relative data to be used, and the performance measurement isolates the factor’s contribution to return. For example, in Figure 1, US stocks with a high book-to- price (i.e., high-value stocks as measured by book-to-price) underperformed the broad US market by 40 bps on a sector-adjusted basis.


The information contained in this communication is for informational purposes only. Investment Metrics, a Confluence company, is not providing, legal, financial, accounting, compliance or other similar services or advice through this communication. Recipients of this communication are responsible for understanding the regulatory and legal requirements applicable to their business.

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