The Market Spin Cycle: Uncovering Style and Sector Rotation in a Flat Market
May 23, 2014
Recent U.S. equity market performance, driven by a significant decline in glamour (high-growth, high-momentum) names, has attracted a lot of attention from market analysts. By now it is well publicized that, despite the range-bound performance of the US equity market since March, there have been significant differences among the performance of various sectors of the economy.
We contribute to this discussion by focusing on what we view as a rotation in investment styles. This rotation has been observed within majority of GICS® sectors, but it has been most pronounced in Health Care, Information Technology, and Consumer Discretionary, the three sectors with the weakest performance from March 1 to May 15, 2014.
Using MSCI Barra models, in this paper we identify a rotation in investment styles highlighted by declining performance in growth-oriented styles currently associated with risk-taking behavior, such as Beta, Growth, and Momentum, and improving performance in Value, Profitability, and Size, styles appealing to more risk-averse investors focused on valuations.