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Another strong quarter in markets led to another stellar performance for the Momentum and Growth factors.The first quarter of 2024 picked up where the final quarter of 2023 left off, with most markets finishing in positive absolute territory as inflation continued to moderate, suggesting that a more favorable environment for growth could unfold later this year if central banks begin trimming interest rates. This narrative helped drive outperformance in the Momentum and Growth factors, with Momentum the standout performer across all regions. Other than in the U.S., Value also outperformed, but to a lower extent.In this risk-on environment, Low Volatility was the worst performing factor, with Quality also lagging across most regions. In addition, Small Caps fared worse than Large Caps during the quarter.The U.S. market, which generated double-digit returns, fared particularly strong in the first quarter, but Japan was the stand-out performer as it continued to benefit from the prospect of seeing healthier levels of inflation, which allowed it to move away from seven years of negative interest rates. Japan also benefited from the value-up theme spearheaded by the Tokyo Stock Exchange, which is pushing for better corporate governance. Given the strength of the U.S. dollar during this period, returns in local currencies were even stronger. China was again the largest market to generate negative returns, but there appears to be some initial signs that the market is starting to bottom.On balance, the first quarter was a more favorable environment for active managers in U.S. Large Cap, U.S. Small Cap, Emerging Markets, the UK, Europe, Australia, Canada, Long/Short, and Global Real Estate, while being more challenging for Global, Global ex-U.S., Japan and Listed Infrastructure managers. Meanwhile, country and sector dispersion remained wide, impacting managers’ relative returns alongside stock selection.The information technology sector continued its strong run on the back of the AI (artificial intelligence) theme, outperforming across most markets. The energy and financials sectors also did relatively well, while the real estate, utilities, consumer staples, and materials sectors underperformed across most markets.At Russell Investments, our unique relationship with underlying managers affords us special access into the latest active management insights. Here are the key takeaways in first-quarter active management performance from our manager research team.
Global equities
The first quarter was a challenging environment for active Global and International equity managers, with around 35% and 45% of products outperforming their respective benchmarks.
U.S. equities
The first quarter was a favorable environment for active U.S. Large Cap and U.S. Small Cap managers, with around 55% and 65% of products outperforming their respective benchmarks.
Emerging markets equities
The first quarter was a favorable environment for active Emerging Markets (EM) managers, with around 65% of products outperforming the EM index.
UK and European equities
The first quarter was a moderately favorable environment for active European equity and UK equity managers, with about 50% outperforming their respective benchmarks.
Japan equities
The first quarter was a challenging environment for active Japanese equity managers, with only around 40% of products outperforming the TOPIX Index.
Australian equities
The first quarter was a favorable environment for active Australian equity managers, with around 75% of products outperforming the ASX 300 index.
Canadian equities
The first quarter was a moderately favorable environment for active Canadian Large Cap equity managers, with around 50% of products outperforming the S&P/TSX Index.
Long/Short equity
The first quarter was a favorable environment for equity Long/Short strategies, with the HFRI Equity Hedge Index advancing about 5.2%, although it didn’t quite match the global equity index surge.
Real estate and infrastructure
The first quarter was a favorable environment for active Global Listed Real Estate managers while being more challenging for Global Infrastructure, with around 75% and 20% of products outperforming their respective benchmarks.
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