PGIM Quantitative Solutions had a very strong first quarter of 2022 despite numerous market and geopolitical concerns. We outperformed our respective benchmarks anywhere between 50 and 550 basis points versus the benchmark and depending upon the strategy. This quarter was obviously not without its challenges as risk and uncertainty remained high in the markets. Investors continued to have concerns over inflation, interest rate increases, slowing corporate earnings growth and continued supply chain disruptions, as well as the unexpected decision by Russia to invade the Ukraine.
Prior to Russia’s invasion of the Ukraine, equity markets were challenged at the start of the year as we saw sharp declines in high growth names, largely within tech. We have seen these lofty valuations correcting at a significantly faster pace in the small and mid-cap space, but the gap remains quite elevated in the large cap space. It dropped sharply during the quarter, which is something we expect to continue. During the quarter, we also saw the highest year over year inflation in 40 years causing the Fed to initiate its first rate hike since 2018.
Our strong performance wasn’t just isolated to one specific period before or after the war, as many of our strategies saw solid performance across the entire period. We saw our best performance across our Emerging Markets strategies where we had an underweight to Russia. At the factor level, valuation was the clear winner across all of our strategies largely driven by strong value performance in January. In the US, we began to see value become more challenged in March. Expensive high growth tech stocks staged a late quarter rally and our growth and quality factors held up well, highlighting the diversification benefits of our multi-factor approach. In our Non-US portfolios, growth performed better in Emerging Markets as compared to EAFE, while quality was more muted. Lastly, we saw our recently implemented top down signals, which allow us to target favorable country industry segments of the market, perform well.