Equity Factor Report - Q3 2023: Value Strategies Rally as Bullish Sentiment Dampens

Executive summary:

  • In Russell Investments’ factor portfolios, the Value factor outperformed the MSCI All-Country World Index during Q3, while the Growth, Momentum and Low Volatility factors underperformed the index.
  • In Q3, the strongest performance among factors was seen in developed ex-U.S. large cap and small cap and U.S. small cap, where Value outperformed by 4.9%, 3.3% and 3.3%, respectively. The weakest performance among factors was in U.S. small cap, where the Size factor underperformed by -2.4%.
  • Allocating capital from crowded securities to those that are less crowded can benefit factor returns.


Global markets in Q3 2023 were characterized by a decline in bullish sentiment that had lifted stocks out of a bear market in the first half of the year, with the MSCI ACWI Index declining by 3.3% in the third quarter. Investors were increasingly confident that a recession was not coming this year, but as the quarter progressed, the rate cuts penciled in for 2024 started to look unlikely—even though signs continued to point to inflation pressures easing in the coming months. This led to a retreat among the magnificent seven stocks that had provided the market with most of its gains in prior months. Instead, energy stocks were the best performers due to the rise in oil prices. The MSCI Emerging Markets Index lost less (-2.8%) than the U.S. and MSCI World ex-US Indices (-3.15% and -4.02%, respectively).

When considering Russell Investments’ factor portfolios (RFPs), the global large cap Value outperformed the MSCI ACWI, yielding positive excess returns of +2.3%. Conversely, the global large cap Growth, Momentum, and Low Volatility portfolios underperformed, all experiencing slightly negative excess returns of -0.5%. The global large cap Size and Quality portfolios remained flat throughout the quarter.

Figure 1: Cumulative excess returns for Global Russell Investments Factor Portfolios vs. MSCI ACWI (07/03/2023-09/30/2023)

Cumulative excess returns for Global Russell Investments Factor Portfolios vs. MSCI ACWI