Quality is one of the most popular and successful of the equity market’s quant factors. It is intuitively appealing and serves as a useful defensive strategy in falling markets. Low Volatility and Dividend Growth are also defensive factors, while Momentum and High Beta are viewed as aggressive or bullish factors. These offsetting behaviors would seem to make for excellent diversification opportunities in equity portfolios, and for the most part, that is true.
The most compelling evidence that a bear market is underway may not be what’s been punished (Transports, Small Caps), but what hasn’t. We believe the final bull market highs of any composite or sector index were recorded on December 29th.