Anyone paying attention to the markets over the past several years is well aware of the tough times Value investors have faced, especially compared to their Growthfocused counterparts. Some have argued that Value’s downfall has been driven by the new normal of low interest rates and flattening / inversions of the yield curve. However, recent research by AQR debunks this theory and shows that interest rates have had little explanatory impact on the troubled returns for Value and that they will have little to do with a potential rebound in the future. We decided to further extend AQR’s analysis by leveraging multifactor risk models to provide a ‘pure’ perspective on Value and interest rates. Since a discussion about Value is often complemented by a discussion on Growth, we also extend the analysis to look at impact of interest rates on Value vs. Growth from a factor perspective. Factor Mimicking Portfolios: A “Pure” Look at Value and GrowthTo create a pure view on Value and Growth, we leveraged factor mimicking portfolios from Axioma’s US 4 Medium Horizon risk model, with history from May 2017 to present. The idea behind a factor mimicking portfolio (FMP) is to use an optimizer to create a marketneutral portfolio that has an exposure of 1 to a given factor and an exposure of 0 to all other factors in the model. FMPs represent the performance of the respective risk model factors and allow us to see the security and exposure characteristics of the factors. In this case, we’ve created FMPs for Value and Growth. Figure 1: Axioma US 4 Medium Horizon factor exposures for the Value (top) and Growth (bottom) FMPs Are Interest Rates a Character in the Value vs Growth Story?Sticking with the approach of using pure factor models for our analysis, we chose to introduce impact from interest rates by leveraging a regressionbased interest rate factor from a macroeconomic risk model. Axioma offers a US macroeconomic risk model which includes an interest rate factor; however, we chose to use Wolfe Research’s QES US Broad risk model to have a more ‘unbiased opinion’ in the analysis. Figure 3: Value FMP factor exposures for BooktoPrice, Growth, and Interest Rate Beta Figure 4: Value FMP factor exposures for BooktoPrice, Growth, and Interest Rate Beta relative to the Growth FMP Figure 5: Factor attribution of performance for the Value FMP vs Growth FMP from May 2017  July 2020 
US & Global Market Summary

US Market: 7/27/20  7/31/20
Please let us know if you’d like to further discuss Factor Mimicking Portfolios or any of the specific factors that we’ve discussed above. 