Morgan Stanley: Factor Effectiveness - August
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Morgan Stanley's quant team reviews August factor performance in Australia: the ASX 200 rose 1.5% (total return), but style reversed sharply from July's value/low-risk regime to one led by growth, size, and resurging momentum, with value, quality, sentiment, and low volatility all underperforming. Leadership was highly concentrated in materials, which contributed +302bps to the index while financials detracted -184bps; gains clustered in diversified miners and gold names (RSG, GMD, ALK, KCN, RRL, EVN). Composite value fell -2.6% (L/S), composite growth rose +8.4%, and 12-month price momentum rebounded +14.7%, with materials contributing 12.6ppt and 9.3ppt respectively, making the rebound heavily dependent on materials leadership. Quality dropped -8.6%, low volatility -18.1% (materials alone -10.7ppt), sentiment -4.8%. The MOST stock-selection model posted a -2.3% Q1-Q4 return spread (July: +4.2%), with Q4 averaging +7.0% versus Q1's +4.8%, and refreshed its top-ranked list, adding MMS, DDR, SIQ, LOV, TLS, and SCG. The composite multi-factor portfolio returned +3.4% (July: -7.1%), driven by growth (+204bp) and momentum (+185bp). Factor correlations fell to their lowest since 2020, with typical factor pairs turning negative, underscoring the diversification value of multi-factor blending. Top-ranked MMS carries an Overweight rating and a 23.00 target price (roughly 15% implied upside); MOST rankings are statistical outputs rather than investment ratings.
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