EQUITY
FACTORREPORT
Q4 – 2023

RESEARCHEQUITY FACTOR REPORT
Q4 2023

Growth strategies rally on theprospect of lower interest rates
OVERVIEW
Buoyed by the prospect of lower interest rates, global markets in Q4 2023 werecharacterised by a rally in technology companies, with the MSCI ACWI Index gaining by arobust 11.2% in the fourth quarter. During the quarter, investors became increasingly con
fident that inflation was no longer a threat and that lower interest rates were on thehorizon. As the quarter progressed, and the prospect of a U.S. Federal Reserve (Fed)pivot took hold, technology stocks led by the Magnificent Seven rallied into the end of thequarter. Energy stocks, which were among the best performers in Q3, lagged in Q4. The
MSCI Emerging Markets Index gained less (+7.9%) than the U.S. and MSCI World ex-U.S.
Indices (+12% and +10.6%, respectively).
When considering Russell Investments’ factor portfolios (RFPs), the Global Large Cap
Growth, Momentum and Size outperformed the MSCI ACWI, with positive excess returnsof +1%, +0.2%, +0.6%, respectively. Conversely, the Global Large Cap Value portfolio
underperformed by -1.8%, along with Low Volatility, with an excess return of -1%. The
Global Large Cap Quality portfolio remained flat for the quarter.

Figure 1: Cumulative excess returns for Global Russell Investments
Portfolios vs. MSCI ACWI
(10/02/2023-12/29/2023)
3%2%
1%0%-1%-2%-3%

25-DEC-23

18-DEC-23

11-DEC-23

04-DEC-23

27-NOV-23

20-NOV-23

13-NOV-23

09-NOV-23

30-0CT-23

23-OCT-23

16-OCT-23

09-OCT-23

02-OCT-23

Global LC RFP Growth

Global LC RFP Low Volatility

Global LC RFP Momentum

Global LC RFP Quality

Global LC RFP Size

Global LC RFP Value

Source: Russell Investments and MSCI

Russell Investments / Equity Factor Report – Q4 2023

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FACTOR PERFORMANCEGLOBAL RUSSELL INVESTMENTS FACTORPORTFOLIOS’ PERFORMANCE DYNAMICSPERFORMANCE DYNAMICS

The performance dispersion among Global Russell Factor
Portfolios (RFPs) this quarter was quite minimal, with a slight
uptick noted in the first half of November and toward the endof December. During November, Value and Growth diverged,
with Growth outperforming Value by +2%. The size factor had
a strong reversal, underperforming in October and flipping thattrend in November and December. It was the opposite for Low
Volatility, which outperformed early in the quarter and thengave up those gains as the quarter progressed. Momentum andQuality had the least amount of dispersion through the quarter.

The performance dispersion among GlobalRussell Factor Portfolios this quarter wasquite minimal, with a slight uptick notedin the first half of November and the last
half of December. During that period,Value and Growth diverged with Growth
outperforming Value by +2%.

Figure 2: 10-Day rolling excess returns for Global RFPs vs. MSCI ACWI
(10/02/2023-12/29/2023)
3%2%
1%0%-1%-2%-3%

Global LC Low Volatility RFP

Global LC Momentum RFP

Global LC Quality RFP

Global LC Size RFP

Global LC Value RFP

29-DEC-23

22-DEC-23

15-DEC-23

08-DEC-23

01-DEC-23

24-NOV-23

17-NOV-23

10-NOV-23

03-NOV-23

27-OCT-23

20-OCT-23

13-OCT-23

Global LC Growth RFP

Source: Russell Investments and MSCIRussell Investments / Equity Factor Report – Q4 2023/3RUSSELL INVESTMENTS FACTOR PORTFOLIOS’PERFORMANCE ACROSS REGIONSIn the fourth quarter of 2023, the performance of the factor portfolios deviated more byregions than in the prior quarter. The Value factor underperformed across all regions
except in U.S. Small Cap, which had a small outperformance of 0.1%. The Size factor had
the most consistency of outperformance across all regions. The Global Growth factor
outperformance of 1% was largely driven by U.S. Large Cap outperforming by 1.4%, while
Developed ex-U.S. and Emerging Markets underperformed (-1.3% and -2.3%, respectively).
The performance of Low Volatility, Momentum and Quality was mixed in terms of direction,
but Low Volatility had a higher dispersion than Momentum and Quality. The strongest
performance among factors was seen in U.S. Large Cap, where Growth and Momentum
outperformed by 1.4% and 0.9%, respectively. The weakest performance among factors
was in Developed ex-U.S. Large Cap, where the Value factor underperformed by -2.9%.

Figure 3: Excess returns of RFPs vs. corresponding benchmarks (Q4 2023 and Q3 2023)

Q4 2023

Q3 2023

8%

8%

4%

4%

0%

0%

-4%-4%-8%-8%
Value

Size

Quality

Momentum

Low Volatility

Growth

Value

Size

Quality

Momentum

Low Volatility

GrowthGlobal LC

U.S. LC

Global LC

U.S. LC

U.S. SC

Developed ex U.S. LC

U.S. SC

Developed ex U.S. LC

Developed ex U.S. SC

Emerging LC

Developed ex U.S. SC

Emerging LC

Source: Russell Investments; FTSE Russell; MSCI

Russell Investments / Equity Factor Report – Q4 2023

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PERFORMANCE OF SUBFACTORSIN THE GLOBAL UNIVERSE

SUBFACTOR PERFORMANCE

Figure 4 below illustrates the performance of various subfactors
in the MSCI ACWI universe for the last quarter, represented
by top minus bottom quintile portfolios1. All Value subfactors
underperformed in Q4 while most Low Volatility subfactors
underperformed. Earnings Variability was the lone exception,with most of the outperformance coming in October. The
performance of the remaining subfactors within factor groups
was mixed. 5-year Earnings Variability showed the strongest
performance (+4.1%), a reversal from the prior quarter when it
was the worst performing factor. Free Cash Flow to Price wasthe largest laggard at -5.7%.

All Value subfactors underperformed inQ4 while most Low Volatility subfactors
underperformed. The performance ofother subfactors within factor groups wasmixed. 5-Year Earnings Variability had thestrongest performance (+4.1%) with mostof the performance coming in October,while Free Cash Flow to Price was theweakest (-5.7%).

Figure 4: Performance of cap-weighted top-minus-bottom quintiles (Q4 2023)
3Yr SPS Growth

Growth3Yr CFPS Growth
3Yr BPS Growth
1Yr EPS Growth
3Yr SPS Growth Forecast
3Yr EPS Growth Forecast

Low Volatility

1Yr EPS Growth Forecast
5Yr Earnings Variability
Low 3M Volatility (daily)
Low 1Yr Volatility (weekly)
Low 5Yr Volatility (monthly)

Momentum

Last Reported Earnings Surprise
FY1 EPS Estimate Revision
6M Momentum
12M Momentum

Quality

Low Accruals
Gross Profit/Assets
3Yr ROE
Low Debt/Equity
Median 3Yr Sales/Price

Value

Median 5Yr Earnings/Price
Book/Price
Forward Earnings/Price
Free Cash Flow/Price
Earnings/Price

-10%

-5%

0%

5%

Source: Russell Investments; MSCI; Refinitiv

Top minus bottom cap-weighted quintile portfolios are not investible and are used to proxy the performance of thesubfactors used in the construction of RFPs. RFPs are long only portfolios.
1Russell Investments / Equity Factor Report – Q4 2023

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EX-ANTE CORRELATIONS AND ACTIVERISK OF GLOBAL RUSSELL INVESTMENTS
FACTOR PORTFOLIOSEX-ANTE CORRELATIONS
AND ACTIVE RISK

There have been no significant changes in the correlation
structure since September 2023, as illustrated in Figure 5 below.
While there has been a slight shift in the trend between Size andLow Volatility, it’s overall fairly muted. Momentum continued its
trend of moving from positively correlated at the beginning of theyear to uncorrelated. The rest of the correlation estimates havelargely remained stable, with no significant changes. While weobserved an uptick in the ex-ante active risk levels – predictive
measures of the active risk associated with factor portfolios inFigure 6 – for Size over the prior quarter, the remaining factors
have maintained a consistent downward trajectory, continuing asignal from the prior quarter of a return to normal in the active
riskiness of these portfolios.

The correlation between Global LC
Momentum RFP and Global LC Low Volatility
RFP has continued to decrease, indicatingthe shift in relative performance of the Low
Volatility factor. The rest of the correlation
estimates have remained stable from theprior quarter. While we observe an uptick in
Size over the prior quarter, the ex-ante active
risk levels – predictive measures of the active
risk associated with factor portfolios – havemaintained a consistent downward trajectory,
continuing a signal from the prior quarter of a
return to normal in the active riskiness ofthese portfolios.

Figure 5: Ex-ante correlations with Global LC Low Volatility RFP(01/2016-12/2023)
1.0
0.5
0.0-0.5-1.02016

2017

2018

2019

2020

Global LC Growth RFP

Global LC Momentum RFP

Global LC Value RFP

Global LC Size RFP

2021

2022

2023

Global LC Quality RFP

Source: Russell Investments; Axioma; MSCI

Figure 6: Ex-ante tracking errors of Global RFPs
(01/2016-12/2023)
10%
8%
6%
4%
2%
0%

2016

2017

2018

2019

2020

2021

2022

2023

Global LC Growth RFP

Global LC Low Vol RFP

Global LC Momentum RFP

Global LC Quality RFP

Global LC Value RFP

Global LC Size RFP

Source: Russell Investments; Axioma; MSCI

Russell Investments / Equity Factor Report – Q4 2023

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SPOTLIGHT ON: FACTOR PERFORMANCE IN
DIFFERENT INTEREST RATE REGIMESIn November and December, markets rallied on rising optimism of an end to interest rateincreases and the possibility of interest rate cuts in 2024. During this rally, we observed ashift in leadership to growth strategies vs. value strategies. If interest rates have indeed
peaked – as investors expect – and a period of easing is realied in 2024, what is theimpact on factor performance during these different regimes? We examined historicalperiods of different interest rate regimes and inspected factor performance during and
immediately after these regimes. The charts below show the results of our findings.

Figure 7: Cumulative performance during rising interest rates
START TO END

Mkt_Less_RF

SMB

HML

RMW

CMA

MOM

QMJ

September 1965 to November 1966

-7.3%

13.3%

3.6%

-3.1%

-2.3%

24.0%

-0.5%

October 1967 to August 1969

-5.0%

13.9%

7.9%

-3.9%

6.3%

17.3%

7.3%

February 1972 to July 1974

-35.5%-26.7%

40.0%

-1.0%

25.6%

56.6%

19.5%

January 1977 to March 1980

-5.5%

59.3%

6.0%

4.3%

5.3%

70.8%

-1.7%

July 1980 to January 1981

11.2%

11.0%

-15.0%

9.5%

-7.4%

16.0%

6.7%

February 1983 to July 1984

-5.3%

1.6%

29.3%

13.8%

16.1%

-2.0%

18.5%

March 1988 to April 1989

11.7%

2.8%

10.0%

1.2%

7.9%

10.4%

0.7%

December 1993 to April 1995

7.5%

-5.4%

2.3%

8.3%

3.5%

6.0%

15.0%

January 1999 to July 2000

12.2%

11.5%

-19.5%-26.6%

-0.4%

41.4%

0.4%

May 2004 to July 2006

13.7%

6.1%

27.1%

8.8%

-5.9%

16.9%

-1.3%

November 2015 to January 2019

36.5%

1.4%

-7.2%

1.8%

-4.1%

-9.0%

20.1%

March 2022 to July 2023

1.5%

-1.2%

-5.6%

13.1%

0.9%

-6.4%

13.8%

Average Return

3.0%

7.3%

6.6%

2.2%

3.8%

20.2%

8.2%

Positive Hit Rate

56.6%

50.9%

56.6%

52.8%

53.6%

63.4%

55.1%

Source: Fama French website, AQR

During periods of rising interest rates, Momentum (MOM) was the strongest performer
with a +20.2% return and a high 63% hit rate. Quality (QMJ), Size (SMB) and Value (HML)
are next with positive performance of +8.2%, +7.3% and +6.6%, respectively. Investment(CMA, Conservative minus Aggressive) and Profitability (RMW) were significantly weakerwith respective performance of +3.8% and +2.2%.

Russell Investments / Equity Factor Report – Q4 2023

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Figure 8: Cumulative performance during easing interest rates
START TO END

Mkt_Less_RF

SMB

HML

RMW

CMA

MOM

QMJ

December 1966 to April 1967

17.9%

17.4%

-3.3%

7.0%

-9.4%

-0.6%

-3.3%

March 1970 to February 1971

3.3%

-3.0%

14.1%

0.0%

17.4%

-13.1%

4.5%

August 1974 to May 1975

15.6%

6.5%

-2.0%

-6.9%

5.3%

-5.1%

-3.1%

April 1980 to June 1980

12.8%

4.6%

0.7%

-1.9%

-1.3%

0.0%

-3.8%

July 1981 to January 1983

0.8%

4.7%

17.0%

-0.6%

16.1%

33.2%

10.5%

August 1984 to August 1986

56.6%

-10.7%

13.5%

19.3%

1.4%

28.7%

17.8%

May 1989 to August 1992

18.1%

-14.2%

-6.5%

28.8%

-0.4%

50.6%

35.5%

December 2000 to December 2001

-13.7%

30.3%

23.8%

18.7%16.4%

-4.4%

12.0%

September 2007 to December 2008

-38.3%

-0.1%

-4.5%

26.4%

1.0%

40.5%

39.1%

August 2019 to March 2020

-14.4%-13.4%-22.8%

-3.0%

-2.0%

8.7%

0.7%

Average Return

5.9%

2.2%

3.0%

8.8%

4.4%

13.9%

11.0%

Positive Hit Rate

55.6%

50.3%

51.0%

63.6%

49.0%

62.9%

66.2%

Source: Fama French website, AQR

Interestingly, when compared to a rising interest rate environment, we see that the same
factors performed the best. When interest rates were going down, Momentum (MOM) andQuality (QMJ) were the highest performers with returns of +13.9% and +11%, respectively.
However, we saw a change in the Profitability (RMW) factor with a positive return of +8.8%
compared to only +2.2% during rising interest rates. We saw the reverse with Value andSize, with those factors being the weakest performers with the average return down by-3.6% and -5.1%, respectively, compared to periods of rising interest rates. Investment(CMA) didn’t have a large change between the two regimes.

Russell Investments / Equity Factor Report – Q4 2023/8Figure 9: Cumulative performance during flat interest rates
START TO END

Mkt_Less_RF

SMB

HML

RMW

CMA

MOM

QMJ

July 1963 to August 1965

23.6%

2.5%

14.1%

1.1%

3.0%

16.7%

-0.7%

May 1967 to September 1967

4.7%

16.3%

3.6%

-1.4%

2.4%

6.8%

2.1%

September 1969 to February 1970

-7.7%

-0.9%

-3.6%

3.3%

2.0%

7.6%

8.5%

March 1971 to January 1972

7.3%

2.6%

-7.1%

8.2%

-3.7%

8.7%

5.8%

June 1975 to December 1976

17.2%

12.6%

28.8%

-7.0%

13.3%6.6%-10.7%

February 1981 to June 1981

-0.3%

8.8%

8.9%

-2.3%

4.0%

-3.8%

1.2%

September 1986 to February 1988

-1.6%

-8.5%

0.9%

8.4%

14.1%

-10.1%

12.1%

September 1992 to November 1993

14.8%

13.1%

13.8%

-5.7%

9.1%

29.6%

-12.6%

May 1995 to December 1998

101.0%-29.1%

11.0%

24.2%

0.3%

61.1%

33.5%

August 2000 to November 2000

-12.1%

-4.0%

25.5%

23.0%

20.1%

0.6%

21.5%

January 2002 to April 2004

1.6%

29.2%

14.0%

10.4%

31.6%

1.6%

2.8%August 2006 to August 2007

12.1%

-1.9%

-9.6%

0.8%

1.3%

-0.5%

3.4%

January 2009 to October 2015

169.9%

7.3%-14.7%

8.5%

4.5%-34.2%

6.4%

February 2019 to July 2019

9.4%

-5.9%

-7.2%

3.0%

-3.1%

8.2%

2.6%

April 2020 to February 2022

75.9%

16.7%

27.1%

25.2%

16.2%

-15.9%

2.4%

Average Return

27.7%

3.9%

7.0%

6.7%

7.7%

5.5%

5.2%

Positive Hit Rate

64.9%

53.1%

53.1%

56.4%

54.8%

61.3%

51.8%

Source: Fama French website, AQR

Not surprisingly, the market experienced the strongest performance when monetary policy
was in a static state, with a strong +27% return. During those periods, Investment (CMA),Value (HML) and Profitability (RMW) were the best performers. Momentum (MOM) andQuality (QMJ) and Size (SMB) were the weakest.
Momentum (MOM) and Quality (QMJ) were the best performers in both rising and fallinginterest rate regimes. During periods when interest rates were flat and markets were in arecovery phase, Profitability (RMW), Value (HML) and Investment (CMA) were the bestperformers. Size only performed well in rising interest rate regimes and was the weakest
performing factor in other regimes.

Russell Investments / Equity Factor Report – Q4 2023

/9Figure 10: Average cumulative performance 1-year following the end of each regime
16%
12%
8%
4%
0%
-4%
1 year from Peak Interest Rates
Mkt_Less_RF

1 year from Easing Interest Rates
SMB

HML

RMW

CMA

1 year from Flat Interest Rates
MOMQMI

Finally, we looked at the performance of the factors one year after the end of each regime.
Here, we observed a low distinction in returns following peak interest rates, with Value(HML) performing the worst (+4.5%) while Profitability (RMW), Momentum (MOM) andQuality (QMJ) were the best performers (+6.5%, +6.2%, +5.8%, respectively). During themarket recovery phase, one year following the lowest point in interest rates, Size (SMB)
was by far the best performer (+12%), followed by Investment (CMA) and Value (HML)with returns of +6.0% and +5.6%, respectively.
The one-year period following flat interest rates was best characterised by a shift fromrecovery to an expansion phase of the market. Here, we saw a shift in leadership, withMomentum (MOM) and Quality (QMJ) as the best performers, with returns of +10.3%
and +5.4%, respectively. Size (SMB) and Value (HML) were next at +5% and +4%.
Investment (CMA) and Profitability (RMW) were the weakest with returns of +3.3% and+2.7%, respectively.

THE BOTTOM LINE
• Russell Investments’ Global Large Cap Growth, Momentumand Size factor portfolios outperformed the MSCI ACWI
benchmark, while Global Large Cap Value and Low Volatility
underperformed. The Global Large Cap Quality factor portfolio
was flat for the quarter.
• The correlation between Global LC Momentum RFP and Global
LC Low Volatility RFP continued to decrease, while the rest of thecorrelation estimates remained stable from the prior quarter.
• During periods of falling interest rates, the Momentum (MOM) andQuality (QMJ) factors have historically performed the best.

Russell Investments / Equity Factor Report – Q4 2023

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