Recently we’ve looked at how various “factors” can help investors and traders improve their returns (here and here). Before we run our trading models on these factor-specific indices, let’s first look at how each factor-specific index performs. The hope is that by trading factor-specific indices instead of the broad S&P 500, our models’ returns would increase.
*All data from the Bloomberg Terminal
S&P 500 Total Return Index
NASDAQ 100 (non-Total Return)
Here’s the NASDAQ 100. It does not include dividends reinvested.
Notice how the NASDAQ is much more volatile than the broad S&P 500. The NASDAQ is full of growth stocks. Growth tends to be more volatile than value (think Amazon vs. Walmart)
NASDAQ 100 (Total Return Index)
Russell 2000 Total Return Index
S&P 600 (non-total return)
S&P 600 (total return)
Here’s the S&P 600 Total Return Index
Notice how small cap stocks didn’t go up from 1998-2000 like the S&P 500 did, but also didn’t really go down from 2000-2002 like the S&P 500 did. Also, notice how small cap stocks did much better than the S&P in the 2002-2007 and 2009-2018 bull markets.