Index Dashboard: S&P 500® Factor- Indices Q3, 2018 ...

Index Dashboard: S&P 500? Factor- Indices Q3, 2018

QUARTERLY AND 12M TRAILING PERFORMANCE SUMMARY

S&P 500 Quality S&P 500 Momentum

S&P 500 Growth S&P 500 QVM Multi-Factor S&P 500 Dividend Aristocrats S&P 500 Minimum Volatility

S&P 500 Buyback S&P 500 Value

S&P 500 Enhanced Value S&P 500 High Momentum Value

S&P 500 Equal Weight S&P 500 Pure Value S&P 500 High Beta

S&P 500 Low Volatility S&P 500 Pure Growth S&P 500 Low Volatility High Dividend S&P 500 High Dividend

0%

Q3 2018 Total Return

2.11% 1.84% 2% 4%

9.87%

9.75%

9.28%

8.21%

7.91%

7.05%

6.78%

5.86%

5.73%

5.60%

5.42%

5.17%

5.08%

5.04%

5.04%

S&P 500: +7.71%

6% 8% 10% 12%

S&P 500 Momentum S&P 500 Growth

S&P 500 Pure Growth S&P 500 QVM Multi-Factor

S&P 500 Buyback S&P 500 Minimum Volatility

S&P 500 Quality S&P 500 High Beta S&P 500 Dividend Aristocrats S&P 500 Pure Value S&P 500 Equal Weight S&P 500 Enhanced Value S&P 500 High Momentum Value S&P 500 Low Volatility

S&P 500 Value S&P 500 High Dividend S&P 500 Low Volatility High Dividend

0%

12M Total Return

30.37%

25.21%

21.05%

19.54%

17.77%

16.82%

16.22%

16.07%

15.30%

14.17%

13.95%

11.67%

10.98%

10.71%

10.06% 9.79% 5.33%

S&P 500: +17.91%

10%

20%

30%

40%

COMMENTARY

More than any other factor, momentum-based strategies present challenges to the intuition for disciplined investors. As a security or market displays stronger and stronger positive momentum, it becomes harder to imagine yet-higher valuations.

Momentum positions can creep up on you; in the absence of rebalancing, the best-performing portfolio constituent takes a larger and larger weight. Famously, momentum strategies also tend to suffer significant drawdowns when the winds change, yet rebalancing to avoid the risk of a turnaround can leave you lagging for years, or even decades. Working out how to maintain an allocation in momentum-based strategies without undue risk is a challenging problem.

Our factor dashboard provides several perspectives on how complementary exposures from other factor indices might help manage a portfolio's momentum exposure. The table provides selected highlights ? six indices that display opposite characteristics to momentum, and three that may provide relatively limited diversification:

As the table on the left illustrates, three perspectives in particular can be helpful.

First, what is each alternative index's exposure to the momentum factor?

Second, which alternatives outperformed when momentum underperformed; in other words, which indices have an excess return (ER) that is negatively correlated to the excess return of the momentum index?

Finally, from a constituent perspective, which indices hold the most securities in common, and which have minimal overlap?

The utility of these questions is illustrated by the graph on the right, which compares the 3-year relative performance of the S&P 500 Low Volatility High Dividend Index to the 3-year relative performance of the S&P 500 Momentum Index (each taken relative to the S&P 500).

In those periods where Momentum (in red) significantly underperformed, the Low Volatility High Dividend index (in green) frequently displayed significant or rising outperformance.

Source: S&P Dow Jones Indices LLC and/or its affiliates. Data as of September 28, 2018.

ANNUAL PERFORMANCE

Core factor performance by calendar year, 2003-present:

Total Return Value Low Volatility Momentum Quality

2003 31.79% 22.75% 22.54% 28.75%

S&P 500

28.68%

Relative to Benchmark

2003

20%

2004 15.71% 17.69% 11.05% 11.21%

10.88%

2004

2005 5.82% 2.20% 16.69% 5.07%

4.91%

2005

15%

Value

10%

5%

Low Volatility

0%

Momentum

-5% -10%

Quality

-15% -20%

2006 20.80% 19.69% 9.61% 17.59%

15.79%

2006

Index Dashboard: S&P 500? Factor Indices

Q3, 2018

2007 1.99% 0.58% 9.89% 15.50%

5.49%

2007

2008 -39.22% -21.41% -34.56% -34.06%

-37.00%

2008

2009 21.18% 19.22% 17.24% 30.46%

26.46%

2009

2010 15.10% 13.36% 18.72% 14.95%

15.06%

2010

Total Return Value Low Volatility Momentum Quality

2011 -0.48% 14.78% 1.60% 10.89%

S&P 500

2.11%

Relative to Benchmark

20%

2011

2012 17.68% 10.30% 17.33% 14.68%

16.00%

2012

2013 31.99% 23.59% 31.42% 34.24%

32.39%

2013

Value

15%

10%

Low Volatility

5%

0%

Momentum

-5% -10%

Quality

-15%

-20%

Source: S&P Dow Jones Indices LLC and/or its affiliates. Data as of September 28, 2018.

2014 12.36% 17.49% 11.23% 14.95%

13.69%

2014

2015 -3.13% 4.34% 5.56% 0.38%

1.38%

2015

2016 17.40% 10.37% 5.70% 9.56%

11.96%

2016

2017 15.36% 17.41% 28.27% 19.51%

21.83%

2017

YTD 3.51% 5.79% 19.48% 9.35%

10.56%

YTD

15 YEAR RISK & RETURN - ABSOLUTE 14%

Index Dashboard: S&P 500? Factor Indices Q3, 2018

15Y Total Return (Ann.)

High Momentum Value

13%

QVM Multi-Factor

Low Volatility High Dividend

Buyback

12%

Pure Growth

Pure Value

Dividend Aristocrats

Quality

11%

Momentum Equal Weight

Minimum Volatility

Low Volatility

Growth

High Dividend

10%

Enhanced Value

S&P 500

9% Value

8%

0%

5%

TOTAL RETURN AND VOLATILITY

10%

15%

20%

Volatility (Ann.)

TOTAL RETURN

1M QTR 1YR 3YR 5YR 10YR 15YR

S&P 500 Low Volatility High Dividend -0.3% 2.1% 5.3% 14.2% 13.2% 13.9% 12.6%

S&P 500 Buyback

-0.3% 6.8% 17.8% 16.7% 13.5% 15.1% 12.4%

S&P 500 High Momentum Value

-1.1% 5.6% 11.0% 14.6% 13.3% 14.6% 13.4%

S&P 500 Dividend Aristocrats

1.0% 7.9% 15.3% 15.7% 13.1% 13.6% 11.6%

S&P 500 Pure Growth

-0.4% 5.0% 21.0% 16.8% 14.7% 15.8% 12.3%

S&P 500 Pure Value

-0.4% 5.2% 14.2% 15.5% 11.9% 14.1% 12.1%

S&P 500 Low Volatility

-0.4% 5.0% 10.7% 13.9% 12.5% 11.8% 10.5%

S&P 500 Equal Weight

0.1% 5.4% 13.9% 15.4% 12.5% 13.1% 11.1%

S&P 500 Growth

0.7% 9.3% 25.2% 19.9% 16.6% 14.0% 10.5%

S&P 500 Quality

1.8% 9.9% 16.2% 15.2% 12.7% 13.0% 11.4%

S&P 500 High Dividend

-0.7% 1.8% 9.8% 15.1% 13.3% 12.3% 10.3%

S&P 500 QVM Multi-Factor

0.7% 8.2% 19.5% 16.7% 13.7% 12.5% 13.0%

S&P 500 Minimum Volatility

0.6% 7.0% 16.8% 15.2% 13.5% 11.2% 10.7%

S&P 500 Momentum

1.4% 9.8% 30.4% 20.7% 16.1% 12.9% 11.0%

S&P 500 Enhanced Value

-1.2% 5.7% 11.7% 16.1% 12.2% 11.5% 9.9%

S&P 500 Value

0.4% 5.9% 10.1% 14.1% 10.9% 9.6% 8.6%

S&P 500 High Beta

-0.3% 5.1% 16.1% 18.4% 12.5% 10.9% 6.2%

S&P 500

0.6% 7.7% 17.9% 17.3% 13.9% 12.0% 9.7% Performance figures for more than one year are annualized.

Source: S&P Dow Jones Indices LLC and/or its affiliates. Data as of September 28, 2018.

VOLATILITY (ANN.) S&P 500 Low Volatility High Dividend S&P 500 Buyback S&P 500 High Momentum Value S&P 500 Dividend Aristocrats S&P 500 Pure Growth S&P 500 Pure Value S&P 500 Low Volatility S&P 500 Equal Weight S&P 500 Growth S&P 500 Quality S&P 500 High Dividend S&P 500 QVM Multi-Factor S&P 500 Minimum Volatility S&P 500 Momentum S&P 500 Enhanced Value S&P 500 Value S&P 500 High Beta S&P 500

25%

30%

1YR 3YR 5YR 10YR 15YR 8.2% 8.8% 8.8% 13.5% 12.2% 9.9% 11.9% 11.4% 17.0% 15.3% 9.1% 9.9% 10.2% 19.8% 17.5% 8.9% 9.0% 9.4% 13.5% 12.2% 9.8% 10.5% 10.8% 17.1% 15.3% 9.1% 12.2% 12.1% 23.1% 20.5% 7.1% 7.9% 8.3% 10.7% 9.7% 7.6% 9.5% 9.7% 17.2% 15.4% 9.4% 10.1% 10.2% 14.2% 12.9% 8.7% 9.0% 9.6% 13.6% 12.5% 7.8% 8.8% 9.0% 17.7% 15.8% 9.6% 10.0% 10.3% 14.4% 13.4% 7.0% 7.5% 7.9% 11.4% 10.6% 10.2% 9.5% 10.0% 14.2% 13.7% 10.5% 12.6% 12.2% 20.9% 18.4% 8.8% 9.5% 9.6% 15.8% 14.2% 10.7% 17.0% 15.6% 26.8% 24.6% 8.4% 9.2% 9.4% 14.6% 13.1%

15 YEAR RISK & RETURN RELATIVE TO S&P 500

5%

Index Dashboard: S&P 500? Factor Indices Q3, 2018

15Y Outperformance Relative to S&P 500 (Ann.)

4% High Momentum Value

QVM Multi-Factor

3%

Low Volatility High Dividend

Buyback

Pure Growth

2%

Dividend Aristocrats

Quality

Momentum

1%

Growth

Equal Weight Minimum Volatility

Low Volatility High Dividend

0% S&P 500

Enhanced Value

Pure Value

-1%

Value

-2%

-3%

-4%

0%

2%

RELATIVE RETURN AND TRACKING ERROR

High Beta

4%

6%

8%

10%

12%

14%

16%

Tracking Error to S&P 500 (Ann.)

PERFORMANCE v S&P 500

1M QTR 1YR 3YR 5YR 10YR 15YR

S&P 500 Low Volatility High Dividend -0.9% -5.6% -12.6% -3.1% -0.8% 2.0% 3.0%

S&P 500 Buyback

-0.8% -0.9% -0.1% -0.6% -0.4% 3.1% 2.7%

S&P 500 High Momentum Value

-1.7% -2.1% -6.9% -2.7% -0.6% 2.6% 3.7%

S&P 500 Dividend Aristocrats

0.4% 0.2% -2.6% -1.6% -0.8% 1.6% 1.9%

S&P 500 Pure Growth

-1.0% -2.7% 3.1% -0.5% 0.7% 3.9% 2.6%

S&P 500 Pure Value

-1.0% -2.5% -3.7% -1.8% -2.1% 2.2% 2.5%

S&P 500 Low Volatility

-0.9% -2.7% -7.2% -3.4% -1.5% -0.2% 0.9%

S&P 500 Equal Weight

-0.4% -2.3% -4.0% -1.9% -1.5% 1.2% 1.4%

S&P 500 Growth

0.2% 1.6% 7.3% 2.6% 2.6% 2.1% 0.8%

S&P 500 Quality

1.3% 2.2% -1.7% -2.1% -1.3% 1.0% 1.7%

S&P 500 High Dividend

-1.3% -5.9% -8.1% -2.2% -0.7% 0.3% 0.6%

S&P 500 QVM Multi-Factor

0.1% 0.5% 1.6% -0.6% -0.2% 0.6% 3.3%

S&P 500 Minimum Volatility

0.1% -0.7% -1.1% -2.1% -0.4% -0.8% 1.0%

S&P 500 Momentum

0.9% 2.0% 12.5% 3.3% 2.1% 0.9% 1.3%

S&P 500 Enhanced Value

-1.8% -2.0% -6.2% -1.2% -1.8% -0.5% 0.2%

S&P 500 Value

-0.2% -1.8% -7.8% -3.2% -3.1% -2.3% -1.0%

S&P 500 High Beta

-0.8% -2.6% -1.8% 1.1% -1.4% -1.1% -3.4% Performance figures for more than one year are annualized.

Source: S&P Dow Jones Indices LLC and/or its affiliates. Data as of September 28, 2018.

TRACKING ERROR v S&P 500 (ANN.) S&P 500 Low Volatility High Dividend S&P 500 Buyback S&P 500 High Momentum Value S&P 500 Dividend Aristocrats S&P 500 Pure Growth S&P 500 Pure Value S&P 500 Low Volatility S&P 500 Equal Weight S&P 500 Growth S&P 500 Quality S&P 500 High Dividend S&P 500 QVM Multi-Factor S&P 500 Minimum Volatility S&P 500 Momentum S&P 500 Enhanced Value S&P 500 Value S&P 500 High Beta

1YR 3YR 5YR 10YR 15YR 7.3% 7.2% 7.0% 7.9% 7.1% 3.4% 4.9% 4.2% 5.3% 5.1% 4.5% 4.8% 4.4% 8.6% 7.6% 4.3% 4.4% 3.9% 5.2% 5.0% 5.3% 4.6% 5.0% 5.8% 5.3% 5.0% 6.2% 5.7% 11.8% 10.8% 5.4% 6.2% 6.1% 8.0% 7.1% 3.0% 2.8% 2.5% 4.5% 4.1% 3.3% 3.3% 2.9% 3.0% 3.0% 2.9% 2.2% 2.2% 3.1% 3.2% 6.6% 6.4% 6.8% 9.6% 8.6% 3.1% 3.7% 3.2% 3.7% 4.8% 3.4% 5.5% 4.8% 5.9% 5.2% 4.9% 4.7% 4.8% 5.8% 6.5% 5.0% 6.8% 6.0% 8.9% 8.0% 3.7% 3.7% 3.2% 3.4% 3.3% 6.2% 10.9% 9.4% 14.6% 13.9%

DEGREE OF PORTFOLIO OVERLAP AND RELATIVE RETURN CORRELATIONS

PORTFOLIO OVERLAP

Index Dashboard: S&P 500? Factor Indices

Q3, 2018

Dividend

Value

Value

Enhanced High Beta

Equal Weight Pure Value Buyback

High Momentum Value

QVM Multi-Factor

Aristocrats

Pure Growth Momentum

Low Volatility High High Dividend

Minimum Volatility

S&P 500

500 500

500 500 500

500 500 500 500 500

S&P 500 Growth

Dividend Quality

Low Volatility

500 500 500 500 500 500

S& P S& P

S& P S& P S& P

S& P S& P S& P S& P S& P

S& P S& P S& P S& P S& P S& P

S&P 500 Low Volatility

100% 20% 14% 29% 16% 8% 14% 11% 6% 12% 21% 21% 20% 9% 12% 9% 1% 19%

S&P 500 Minimum Volatility

20% 100% 13% 16% 19% 17% 33% 20% 21% 15% 13% 30% 22% 9% 14% 12% 14% 40%

S&P 500 Low Volatility High Dividend 14% 13% 100% 56% 14% 5% 5% 0% 1% 9% 8% 23% 10% 9% 0% 15% 3% 14%

S&P 500 High Dividend

29% 16% 56% 100% 13% 6% 6% 1% 2% 10% 18% 23% 16% 19% 3% 17% 7% 15%

S&P 500 Dividend Aristocrats

16% 19% 14% 13% 100% 12% 12% 6% 7% 8% 9% 17% 11% 10% 8% 10% 6% 15%

S&P 500 Quality

8% 17% 5% 6% 12% 100% 26% 23% 30% 46% 7% 13% 20% 5% 18% 7% 15% 22%

S&P 500 Growth

14% 33% 5% 6% 12% 26% 100% 38% 43% 17% 7% 27% 39% 0% 15% 4% 25% 67%

S&P 500 Pure Growth

11% 20% 0% 1% 6% 23% 38% 100% 32% 18% 9% 0% 23% 0% 16% 3% 34% 26%

S&P 500 Momentum

6% 21% 1% 2% 7% 30% 43% 32% 100% 37% 12% 15% 19% 6% 18% 6% 19% 30%

S&P 500 QVM Multi-Factor

12% 15% 9% 10% 8% 46% 17% 18% 37% 100% 35% 21% 20% 20% 21% 31% 13% 19%

S&P 500 High Momentum Value

21% 13% 8% 18% 9% 7% 7% 9% 12% 35% 100% 26% 20% 35% 35% 35% 16% 18%

S&P 500 Value

21% 30% 23% 23% 17% 13% 27% 0% 15% 21% 26% 100% 49% 27% 22% 31% 13% 60%

S&P 500 Equal Weight

20% 22% 10% 16% 11% 20% 39% 23% 19% 20% 20% 49% 100% 21% 20% 19% 20% 54%

S&P 500 Pure Value

9% 9% 9% 19% 10% 5% 0% 0% 6% 20% 35% 27% 21% 100% 28% 45% 11% 16%

S&P 500 Buyback

12% 14% 0% 3% 8% 18% 15% 16% 18% 21% 35% 22% 20% 28% 100% 25% 19% 20%

S&P 500 Enhanced Value

9% 12% 15% 17% 10% 7% 4% 3% 6% 31% 35% 31% 19% 45% 25% 100% 11% 16%

S&P 500 High Beta

1% 14% 3% 7% 6% 15% 25% 34% 19% 13% 16% 13% 20% 11% 19% 11% 100% 22%

"Portfolio Overlap" is percentage of index weights held in common between any two indices.

RELATIVE RETURN CORRELATIONS

Dividend

Value

Value

Enhanced High Beta

Equal Weight Pure Value Buyback

High Momentum Value

QVM Multi-Factor

Aristocrats

Pure Growth Momentum

Low Volatility High High Dividend

Minimum Volatility

500 500

500 500 500

500 500 500 500 500

S&P 500 Growth

Dividend Quality

Low Volatility

500 500 500 500 500 500

S& P S& P

S& P S& P S& P

S& P S& P S& P S& P S& P

S& P S& P S& P S& P S& P S& P

S&P 500 Low Volatility

1.00 0.85 0.74 0.59 0.67 0.22 -0.08 -0.21 0.08 -0.14 -0.02 0.09 0.05 -0.26 -0.33 -0.39 -0.65

S&P 500 Minimum Volatility

0.85 1.00 0.72 0.60 0.63 0.27 -0.05 -0.16 0.12 -0.14 -0.08 0.06 0.06 -0.25 -0.29 -0.41 -0.62

S&P 500 Low Volatility High Dividend 0.74 0.72 1.00 0.91 0.59 0.10 -0.30 -0.38 -0.21 -0.21 0.07 0.30 0.34 0.06 -0.12 -0.16 -0.32

S&P 500 High Dividend

0.59 0.60 0.91 1.00 0.52 0.06 -0.40 -0.39 -0.32 -0.20 0.13 0.40 0.53 0.28 0.06 0.03 -0.08

S&P 500 Dividend Aristocrats

0.67 0.63 0.59 0.52 1.00 0.36 -0.39 -0.33 -0.12 0.02 0.16 0.40 0.35 0.09 0.08 -0.04 -0.33

S&P 500 Quality

0.22 0.27 0.10 0.06 0.36 1.00 0.08 0.12 0.12 0.31 0.01 -0.07 0.11 -0.13 0.11 -0.21 -0.16

S&P 500 Growth

-0.08 -0.05 -0.30 -0.40 -0.39 0.08 1.00 0.74 0.49 -0.20 -0.59 -1.00 -0.53 -0.73 -0.44 -0.73 -0.30

S&P 500 Pure Growth

-0.21 -0.16 -0.38 -0.39 -0.33 0.12 0.74 1.00 0.51 0.05 -0.26 -0.73 -0.08 -0.38 -0.07 -0.40 0.06

S&P 500 Momentum

0.08 0.12 -0.21 -0.32 -0.12 0.12 0.49 0.51 1.00 0.23 -0.04 -0.46 -0.33 -0.41 -0.24 -0.40 -0.28

S&P 500 QVM Multi-Factor

-0.14 -0.14 -0.21 -0.20 0.02 0.31 -0.20 0.05 0.23 1.00 0.61 0.21 0.11 0.20 0.43 0.34 0.15

S&P 500 High Momentum Value

-0.02 -0.08 0.07 0.13 0.16 0.01 -0.59 -0.26 -0.04 0.61 1.00 0.60 0.47 0.61 0.60 0.70 0.32

S&P 500 Value

0.09 0.06 0.30 0.40 0.40 -0.07 -1.00 -0.73 -0.46 0.21 0.60 1.00 0.52 0.72 0.44 0.73 0.29

S&P 500 Equal Weight

0.05 0.06 0.34 0.53 0.35 0.11 -0.53 -0.08 -0.33 0.11 0.47 0.52 1.00 0.72 0.65 0.50 0.53

S&P 500 Pure Value

-0.26 -0.25 0.06 0.28 0.09 -0.13 -0.73 -0.38 -0.41 0.20 0.61 0.72 0.72 1.00 0.66 0.84 0.65

S&P 500 Buyback

-0.33 -0.29 -0.12 0.06 0.08 0.11 -0.44 -0.07 -0.24 0.43 0.60 0.44 0.65 0.66 1.00 0.67 0.55

S&P 500 Enhanced Value

-0.39 -0.41 -0.16 0.03 -0.04 -0.21 -0.73 -0.40 -0.40 0.34 0.70 0.73 0.50 0.84 0.67 1.00 0.60

S&P 500 High Beta

-0.65 -0.62 -0.32 -0.08 -0.33 -0.16 -0.30 0.06 -0.28 0.15 0.32 0.29 0.53 0.65 0.55 0.60 1.00

Correlation of weekly excess total returns (versus S&P 500), three years to Sept 28, 2018

Source: S&P Dow Jones Indices LLC and/or its affiliates. Data as of September 28, 2018.

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