QMA Quarterly Update Q1 2021QMAQuarterlyUpdateQ12021

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  Hi. I'm Patrick McDonough, portfolio manager for QMA, and I'm here to talk to you about our strong performance for Q1 of 2021.  

  Generally speaking, it was a great quarter for us in all of our strategies across geographical regions, but I'll break it down between US and non-US to get into some of the details. For the US, the real story was the diversification of equity markets, both in the large cap and the small cap space. And we saw divergence in the contribution from names and also from sectors for the first quarter of the year. What was really interesting, if we just look at the sector concentration, was the diversification away from pure tech play as the leading contributors to the S&P 500 compared to last year. So it was hardware, it was software, it was semis that led last year. And these are all great sectors and obviously have future room to grow in the US economy. But the fact that we also saw banks, and we saw capital markets, and we saw oil, gas and other consumable fuels helping to lead in the first quarter reflects the diversification of the economy and the expectations for growth across the economy in the US.  

  We also saw a divergence in the concentration of names that led the indices. We just take the S&P 500 again, last year, the top 10 names were responsible for roughly 80% of the index return alone. It was over 90% if you look at just the top 20 names. For the first quarter, the top 10 names were roughly 35% or so, which is much more in line with historical averages of around 20% if we look over longer time periods. It was also nice to see some of the divergence in factor returns, which of course reflect the fundamentals of the market and what they did for the year up and down the cap space in the US.  

  What was really nice was seeing that intersection across factors really lead in the first quarter. So the intersection of cheap and growth; so cheap, high-growth names. The intersection of growth and quality; so high-growth, high-quality names did very, very well. And that intersection of value and quality; so relatively cheap, high-quality names did very, very well. And that was actually reflected as well across geographical regions, so not just in the US. If we take EAFE up and down the cap space, large and small, if we take emerging markets up and down the cap space, large and small, we saw similar trades and similar reflections. So those contributions across the intersections of factors reflect the diversity of the underlying fundamentals and how investors are looking for opportunities away from those crowded trades that led last year.  

  Additionally, we see that diversification across countries and regions, particularly in areas that were very crowded last year. So if we take the examples of Chinese health and healthcare, Chinese technology, Korean and Taiwanese tech, where there was a concentration of just a few names in all of those areas, that diversification has spread out, even in those very crowded sectors. In other words, those fundamental drivers have allowed the overlooked names in those country-sector combinations to add positive contributions for the first quarter. Interestingly enough, that's usually a sign of broad diversification that has legs. These types of rallies tend to last a long time. In some cases -- in many cases -- years.  

  Now, we can't completely forecast what will happen over the next couple of years, but we have belief reflected both through the sector and country combinations and, of course, as the underlying fundamental factor combinations will provide legs going forward.  

  I hope these few details were a nice introduction for how strong the quarter was for us at QMA, and we're always happy to discuss further if you need more depth. Thank you very much for your time.