U.S. Stock Selection Model Performance Review

In this report, we review the performance of S&P Global Market Intelligence’s U.S. stock selection models in 2018.

Highlights include:

2018 – The rise of uncertainty: U.S. stock returns faced headwinds from uncertainties in monetary, fiscal and trade policies as well as the midterm elections and government shutdown late in the year. A 15 month streak of positive returns ended in January and four months of the year (Feb., Mar., Oct. and Dec.) saw negative returns for the S&P 500, which ended the year down 7.2% on a cumulative basis. Both the S&P 500 and Russell 3000 also saw higher volatility in 2018 as markets sought to digest the uncertainty.

2018’s winning strategies: Just like 2017: Strategy categories that did well in 2017 also did well in 2018 and vice-versa. Price momentum and capital efficiency put up strong and consistent returns in both years whereas size, value, and volatility have lagged. Conditions have favored past winners at the expense of small and cheap companies.

A (mostly) good year for long-short factor models: Despite the volatility and index declines, the four long-short factor models tracked by S&P Global Market Intelligence did well in 2018. The models (Growth, Value, Quality and Price Momentum) benefited from the multifactor approach used in the selection process while the live, out-of-sample results for the four were all positive on both a long-only and long-short return basis. The models performed best in the second half of the year, particularly December, but struggled in April and May.

Healthcare provides a strong dose of performance: The Healthcare sector long-short returns were the strongest among the 11 sectors tracked in 2018 – with double digit returns - except in the Value Benchmark Model where Healthcare was a close second to Energy.