Today marks the first trading day in the second quarter. As we do at the end of each quarter, we will recap the changes that we have seen throughout the various asset classes. Financial markets delivered mixed results across the board, driven by conflict in the Middle East, inflation uncertainty, and concerns regarding the US economy. These trends set the stage for an intriguing second quarter, as we continue looking for areas of strength.

Domestic Equities

Large cap-weighted indices struggled in the first quarter as the S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ) fell 4.37% and 5.93%, respectively. However, the Invesco S&P 500 Equal Weight ETF (RSP) was able to finish the quarter in the black with a small gain of 0.61%. Small and mid-caps also shook off the weakness in exhibited in the large cap space. The iShares Russell Midcap ETF (IWR) was the best-performing ETF out of the five US equity ETFs observed with a gain of 1.27%. Large caps still hold a lead on a long-term basis, but this past quarter has raised concerns over softening leadership.

International Equities

International equities moved into the top spot in our DALI asset class rankings in March. While the asset class wasn’t insulated from broader market volatility, both developed and emerging market representatives ended the first quarter with gains above 1%. The iShares MSCI EAFE ETF (EFA) was up a respectable 1.15% while the emerging market representative, iShares MSCI Emerging Markets ETF (EEM), won the quarter with a 3.80% gain.

Commodities

Commodities had a wild quarter as oil prices flew higher while precious metals aggressively pulled back from highs. The iShares S&P GSCI Commodity Indexed Trust (GSG) gained nearly 40% in the first quarter. While gold pulled from highs established during the first quarter, the SPDR Gold Trust (GLD) still gained 8.57%. It’s yet to be seen if the recent run in commodities is a flash in the pan or a long-term development, but action in Q2 should give us some more answers.

Fixed Income

Fixed Income struggled as rates roared higher on inflation fears before backing off to opening year levels. The iShares 7-10 Year Treasury Bond ETF (IEF) was essentially flat for the quarter with a loss of 0.13%. The outlook for rates cuts for the rest of the year has swung wildly over the last few weeks and further muddying the waters for the asset class.  

US Equity Smart Beta

Other factors commonly accessible through ETFs today are momentum, low volatility, quality, dividend achiever, and buyback strategies. All these factors are designed to pinpoint a certain investment theme within the marketplace, and systematically allocate to that theme. For instance, the “low volatility” factor is represented by the Invesco S&P 500 Low Volatility ETF (SPLV), a fund that seeks exposure to the 100 stocks with the lowest volatility in the S&P 500. Most of the factors examined offer better performance than the benchmark, the SPDR S&P 500 ETF (SPY), through certain durations. However, no single factor ETF has been the best performer every year, or even most of the years...nor has any single factor ETF been the worst performing every year or most of the years.

Factor Return Observations (US Equities)

• Many of the factors that struggled in 2025 are leading in 2026 (so far). Dividend names finished in the bottom spot last year but manage to sit atop the rankings through Q1. If this holds through the rest of the year, it would mark the first time since 2020 that a factor went from last to first (value).
• Conversely, areas that excelled in 2025 have struggled in 2026. Buyback & the benchmark sit towards the bottom of the pack as we open up the second quarter.
• If the core of the market remains in last place for the remainder of the year, it would mark the first time in our observed history that the core finishes last. While less than ideal at first glance, a (relatively) weaker core could create space for trend-followers to find alpha in other factors.
• Despite shifts in leadership away from growth focused areas so far in 2026, the momentum factor representative has been able to perk up nicely so far this year. The momentum representative has gained roughly 4% so far this year.

It is About Time in the Factor, Not Trying to Time the Factor

Our goal with the research above is to illustrate the range of available factors and the necessity of discipline in applying these factors over time. We want to promote “good behavior,” as it relates to any investment process or product. This is perhaps the most important observation from the data above; we illustrated the outcomes generated by a few common behaviors using the same investment universe, and the outcomes vary dramatically.

There are the “buy and hold” outcomes, which show buyback and growth as the best performers throughout the entire timeframe, but we also know inherently what comes with a buy and hold commitment to only one group. 2026 has showcased this issue most recently as these factors struggled throughout Q1. Other examples include 2022 or 2000-2002- all tough spans for growth, tougher than many could endure. While buyback has turned it around over the last decade, there was a five year stretch from 2014-2018 where the factor didn’t crack the top half of performance rankings. This can be tough to stomach as other areas continue to excel.

Another approach is to equal weight all seven factors in a portfolio and rebalance that portfolio once a year. This gives you a baseline that notably underperforms the benchmarks over the last 10+ years. We also looked at the hypothetical behavior of buying the best-performing factor from the previous year and holding that factor for the entire next calendar year; we called this “Return Chasing,” and while no portfolio manager markets themselves this way exactly, it is an emotional bias that creeps into many investors’ psyches.

This “Return Chasing” portfolio tracks a hypothetical investor who sees that no strategy could beat the benchmark last year, so they just buy that factor for the next year. As mentioned previously, this has only “worked” in back-to-back full calendar years from 2012-2013… and while growth did well in 2025, return chasing still hasn’t worked quite well over our back test. On a cumulative basis, return chasing has massively underperformed not only the other “strategies,” but also what buying-and-holding almost any other factor would have provided. The factors themselves are not the problem, as many create substantial alpha relative to the market. Bad behavior can create bad returns out of good products, and constantly chasing last year’s best-performing factor often exemplifies that reality.

The opposite of return chasing is the contrarian approach, which buys the worst-performing factor from the previous year and holds it for the subsequent calendar year. The “Contrarian Switching” portfolio illustrates what is missed when an investor dumps a factor for having a bad year. A good stock can become a bad stock and remain such for a long time, so a good factor is less likely to stay perennially out of favor because it should have a process of systematically eliminating bad stocks – this is evidenced by the outperformance of the “Contrarian Switching” strategy, which has beaten the "average" portfolio of equally weighted factors despite a poor stretch the last few years. It is working so far for dividend names.

International Equity Smart Beta

These strategies can also be applied to factor representatives from international equities, which, as we can see below, demonstrate similar tendencies to their domestic counterparts. Note that the representatives below are only for developed market equities, as there has not been enough historical representation of factor exposure in emerging markets to represent a robust examination.

Factor Return Observations (Intl Equities):

• After all the international groups finished in the black in 2025, most of the space continued to advance throughout the first quarter of 2026. Growth options were the lone exception.
• In a similar fashion to 2025, there remains an apparent preference for value focused areas. International quality has also picked up.
• After spending finishing 2023-2025 in the top half of the rankings, momentum has cooled off a bit to open the year. Despite this, the factor is still up in 2026, seeing the representative gain just over 1% in Q1.

As we do each quarter, we will take today’s report to look across different asset classes and focus in on the best and worst performing funds for the first quarter as a whole. Note, during our screen we filtered out leveraged and inverse funds & put in minimum volume and AUM requirements to focus solely on those funds you are most likely to see come across your desk. We also did our best to avoid similar kinds of funds when possible, (to avoid the entirety of our tables being taken up by oil, for example…) but there will likely be similar themes during our analysis.

We will start broadly by peering across all of the different asset groups at once. As you might expect, our top ten performers were littered with energy and commodity options. Outside of those groups, other international names (South Korea and Latin America) found place as top performers. On the flip side, many cryptocurrency founds found their place near the bottom of this quarter's performers once again. However, some emerging market names also found their way to the bottom. 

Speaking of international options, our second table dives underneath the hood of that group specifically. Several global options flexed their muscles, with a few countries putting in very constructive quarters. Points of interest come from a another solid performance from Latin American names after a scorching hot 2025. China and India were major detractors from a pure performance perspective, with the two regions becoming some of the biggest laggards within international equities. 

The following tables focus on individual sectors and commodities, respectively. Of interest in terms of Q1 upside, energy was be far the biggest bright spot for both the commodity space and sector performances. Oil funds gained 80%, lifting the vast majority of energy ETFs higher. Several basic materials groups also put together a solid three months. Towards the downside, software led the way to the downside, while other technology-focused areas also declined, with the big exception of semiconductors. On the commodities front, laggards came from several precious and industrial metal representatives after what was an extremely strong 2025.

Our last set of tables below detail performance trends for the broader fixed income and currencies space. While fixed income as a whole remains a laggard within our longer-term rankings, there were points of strength within the asset class. Convertibles continue to be the relatively strongest area of fixed income, remaining at the top in terms of performance. Meanwhile, international bond funds has a rough quarter as the dollar and interest rates both rose. Across the currency space, crypto continue to see some of the most downside among any areas of the market. In terms of more traditional currencies, the US Dollar rose 1.7%, causing other currencies to depreciate against the greenback. 

Each week the analysts at NDW review and comment on all major asset classes in the global markets. Shown below is the summary or snapshot of the primary technical indicators we follow for multiple areas. Should there be changes mid-week we will certainly bring these to your attention via the report.

Remember, these are technical comments only. Just as you must be aware of fundamental data for the stocks we recommend based on technical criteria in the report, so too must you be aware of important data regarding delivery, market moving government releases, and other factors that may influence commodity pricing. We try to limit our technical comments to the most actively traded contracts in advance of delivery, but some contracts trade actively right up to delivery while others taper off well in advance. Be sure you check your dates before trading these contracts. For questions regarding this section or additional coverage of commodities email james.west@nasdaq.com.

Data represented in the table below is through 3/31/2026:

Portfolio View - Commodity Indices

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