Bernstein's Japan Technology Strategy report indicates a significant reversal in investment style within the Japanese technology sector in the third quarter of 2026. Relative to the Japanese technology sector, the high-yield factor outperformed by 12 percentage points, while value and low-volatility factors both outperformed by 11 percentage points; the momentum factor lagged by 20 percentage points, and the growth factor lagged by 8 percentage points. Previously favored growth and momentum strategies cooled considerably, while value, defensive, and cash flow yield-related strategies began to outperform.
This shift continued into the first half of October. As of October 16th, low volatility and high free cash flow yield factors outperformed the technology sector by approximately 4 percentage points each, while quality and QARP (Quality Assurance, Price, and Reliability) factors both outperformed by approximately 3 percentage points, indicating continued pressure on momentum and growth styles.
Bernstein believes that the relative earnings forecasts for the growth, momentum, and quality portfolios have already reached near-high levels, and their subsequent performance may be pressured by peaking earnings expectations. In contrast, the high-yield portfolio remains attractively valued, earnings expectations have not yet reached extreme levels, and the risk of crowded trades is lower; QARP still has room for further upward revisions in earnings forecasts. The bank expects the relative weakness of growth and momentum styles to continue until the end of the year.
