Betting against the hottest equity risk factors this year has been a painful strategy, if only in relative terms. But no matter how you slice the numbers, momentum and large-cap growth continue to outperform in 2024, based on a set of ETFs through yesterday’s close.Not only are those gains well ahead of the rest of the factor field, but the returns also reflect solid premiums over the broad market’s 18.
There are limits, of course, but until there’s a catalyst that jolts the crowd into a state of deep attitude adjustment, the default assumption is that recent history remains the best near-term guide to the future. Some analysts thought the late July market correction was the beginning of the end for the usual suspects that have been dominating performances this year. So far, however, that forecast has given way to a rebound led by – you guessed it – momentum and large-cap growth.But the contrarians don’t give up easily. Brian Armour, an analyst at Morningstar, has been beating the contrarian drum this month.
Value and small-cap shares, he reasons, are the poster children for out-of-favor factors. “Why would value and small-cap companies make a comeback? Because investors have given up hope through a decade of underperformance.” The crowd, meantime, has become conditioned to dismiss any strength that threatens the momentum and large-cap dominion.For true believers in contrarianism, this is an encouraging sign. When strength in the laggards is dismissed as noise, it’s interpreted as an indication that maximum pessimism for a contrarian strategy is ripe for the taking.
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