There’s been no place to hide for US equity beta strategies this year, but the distribution of pain varies widely from a risk-factor perspective, based on a set of representative exchange-traded funds. The factor funds with the softest haircuts year to date: large-cap growth, momentum and low-volatility. By contrast, the various flavors of small cap , along with mid-cap value, have suffered the most.

For the moment, iShares S&P 500 Growth (IVW) has fallen the least in 2020 through yesterday’s close (Apr. 6) for the main cuts of US equity factors. The fund is down 11.6% year to date. A close second: iShares Edge MSCI USA Momentum Factor (MTUM), which has shed a relatively light 13.4% so far this year. In third place: iShares Edge MSCI Minimum Volatility USA (USMV), which is nursing a 14.7% year-to-date slide. In all three cases, the losses are milder vs. the benchmark: SPDR S&P 500 (SPY), which is down 17.2% this year.

By contrast, the deepest loss for our set of factor funds: iShares S&P Small-Cap 600 Value (IJS), which has tumbled a steep 38.9% year to date. The small-cap growth (IJT) and small-cap core (IJR) funds are also posting relatively steep losses. Note, too, that mid-cap value is the second-worst performer this year: iShares S&P Mid-Cap 400 Value (IJJ) has declined a hefty 35.6% in 2020 through Monday’s close.

The deeper losses in small-cap and value funds this year aren’t surprising. A long line of research asserts that small cap and value factors harbor bigger risks. In the long run, those risks have shown a tendency to deliver bigger risk premia vs. their growth and benchmark counterparts. The question is whether that history will survive the current crisis?

The optimistic view is that the bigger decline in small cap and value aligns with unusually high expected returns vs. growth and the broad market benchmark. It’s a compelling argument, or so a long-run view of history suggests. The mystery is whether the future will bail out long-held beliefs for small cap and value strategies. Meantime, hope springs eternal, albeit for a smaller subset of investors who continue to keep the faith that small and inexpensively priced stocks still offer higher risk premia.

Meantime, one thing is certainly clear: small cap and value strategies are in a much deeper hole these days and face a steeper challenge for rebounding in the months and years ahead.

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