Quantitative Insight - The Impact of Macro Factors for Canada Equities

Apr 20, 2012

The characteristics of the Canadian economy suggest that commodity returns are an important risk driver for Canadian equities. One of the highlights of the new Barra Canada Equity model (CAE5) is an enhanced style factor structure, which includes two commodity-related factors: oil and gold sensitivity. These factors explain the return differences between stocks caused by sensitivity to spot commodity returns. We illustrate how these factors add value by providing information in addition to industry structure. Historically, commodity sensitivity factors have had strong return profiles, intuitive correlations with market performance, and significant contributions to portfolio returns.