UBS Equities-US Style Guide _Feb 2025 Low Volatility and Value Favored_ ...-113898023

ab4 March 2025Global ResearchUS Style GuideFeb 2025: Low Volatility and Value Favored Market PerformanceMarkets fell in February with the S&P down -1.8%. The spread between large and small widened as Small caps (Russell 2000 down -6.2%) trailed large caps (Russell 1000 down -2.2%). The Federal Reserve has been cautious on additional interest rate cuts amid inflation concerns related with policy uncertainties, particulary possible tariff changes that could disrupt supply chains and push inflation higher.Factor OverviewFactor performance remains mixed across and within factor styles. The best performing factors in February were Low Price Beta (+8.9%) and Low Volatility (+8.5%) while Momentum Composite (-4.1%) and EPS Growth (-3.1%) were the worst performing. Factors were mixed across Growth and Quality, while for the most part, Value factors did well (Figure 1Style Factor Performance, Most Recent Month). Factor valuations remain expensive, with Low Price Beta, and Composite Value being the cheapest (Figure 6US forecast PE in diferent factors ).Investing Environment OverviewThe importance of Macro drivers continues to fall, and currently sits below 25% at Feb end. The largest contributors were Crude Oil at ~10% and US Yield Spread (10Y-2Y) at ~11%, similar to previous month end. Gold and US AAA Spread are at similar levels since the end of last year (Figure 2US macro drivers through time). Cross-sectional volatility ticked up for Large and Small caps (Figure 3Cros-sectional volatility) while pairwise correlation (Figure 4Average pairwise corelation) flatted. When looking at market valuation (Figure 5Market forecast PE in diferent universes), Large Caps remain expensive while Small Caps are valued below historical levels. Most sectors remain expensive with the exception of Real Estate (slightly undervalued) and Energy (fairly valued).Coming in March 2025Join us March 19th – 20th for the UBS Quant, Evidence Lab and HOLT Conference in London. Click for Agenda and Registration Information.Figure 1: Style Factor Performance, Most Recent MonthSource: FactSet, UBS Quantitative Database eThis report has been prepared by UBS Securities Australia Ltd. NA ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 12. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.EquitiesAmericasQuantitativePaul WinterAnalyst paul-j.winter@ubs.com +61-2-9324 2080Jaiwish NolanAnalyst jaiwish.nolan@ubs.com +1-212-713 1489Augusto Espin, PhDAnalyst augusto.espin@ubs.com +1-212-713 4802Oliver Antrobus, CFAAnalyst oliver.antrobus@ubs.com +61-3-9242 6467Josephine Gerken, PhDAnalyst josie.gerken@ubs.com +44-20-7901 5958Will Stephe