Quantitative Strategies
Valuation Dispersions At Extremes
Valuation dispersions remain at extreme levels. Dispersions within Large Cap stocks remain above Tech Bubble levels, but are on par with Mid and Small Cap stocks on an absolute basis. Spreads within sectors also present historic stock selection opportunities.
Factor Performance: Value Crushed
The selloff has served to amplify secular style-trends that were in place going into this debacle. Large Cap Growth has continued to outperform everything else, with the underperformance of Value stocks accelerating alongside market losses.
Factor Performance During Sell-Off: Momentum Dominates
Momentum made up for a lackluster 2019 by providing protection during the volatile market correction, while Value continued to be punished. Momentum remains expensive relative to its long-term history, while Value remains cheap, but neither is outside levels seen in recent years.
Tesla: A Short Story
The common, and easy reason given for the recent Tesla move is a short squeeze. We don’t deny that existing shorts are getting “squeezed,” but that’s a result, not a cause, of the recent move. The more likely instigator is speculator FOMO (Fear Of Missing Out).
The Factor Of The Decade Is... Sales Stability?
During a decade characterized by surging equity markets and the proliferation of smart beta products, the best performing quantitative factor was Sales Stability, which isn’t usually associated with either of those trends.
The State Of Momentum
Going forward, high Momentum will depend on an unlikely combination of Information Technology and low Volatility, while low Momentum continues to have outsized exposure to Energy and Materials. Recent weakness only moderately tempered valuations, which could be a headwind.
Factor Performance: Momentum Saves The Day (Year); Value Is Awful
Momentum has made a furious comeback after a rough start to the year, posting an +11% spread in both May and August. Value continues to get crushed and there has been nowhere to hide: The pain is equally distributed between cheap and expensive, and it’s happening in every sector.
Factor Performance: Has Anything Changed In 2019?
· From a factor performance standpoint, 2019 is looking a lot like 2018, with expensive Momentum names outperforming everything else and Value struggling.
Momentum Negative In Q4, But Positive For 2018
2018 was frustrating for most investors as Value continued to struggle and positive Momentum performance was difficult to capture. Small Caps, Mid Caps, and ADRs also underperformed.
What’s In Momentum Now?
Along with market volatility, the composition of Momentum has changed, becoming more defensive and less exposed to cyclicals and commodities.
October Factor Performance
Most factor categories reversed performance along with the market in October. During the month, Value had solid results while Growth gave up all of its 2018 gains. Profitability also had a nice bounce-back month.
Price Hasn't Mattered
While Momentum continues to work overall, the gains have been skewed to the companies trading at the highest valuation multiples. Extremes, based on both price and valuation, have only been greater a handful of times during the period measured.
Value Turns Positive
Value finally performed well during July, turning in its best month of 2018 on a spread basis. While the factor category is still deep in negative territory for the year, almost 85% of its underperformance is coming from the worst quintile outperforming the universe; meaning Value has mostly struggled because of expensive stocks outperforming, not cheap stocks lagging.
Narrow Momentum Performance Hard To Capture
While Momentum has worked very well during the last year, the best performance has been concentrated among the most expensive securities within the high Momentum group.
Has The Makeup Of Momentum Changed?
The makeup of Momentum has stayed surprisingly steady through the volatility in 2018, with Info Tech and Health Care maintaining overexposure. Energy is sneaking in, though, and could be poised to take a much larger share.
Growth Continues To Crush Value
Value can’t catch a break. Even a bounce in oil can’t jumpstart the traditionally value-oriented Energy sector. We’ve been sticking to our late bull-market thesis that Growth will outperform, but as we see signs that gains may be limited (or non-existent) going forward, a shift to Value could be in the making.
2017 Factor Performance
2017 was a great year for factor performance. We track seven factor categories and Value was the only one to produce a negative return spread.
Tax Reform Hits Factor-Land
Apparently tax reform wasn’t priced in.
Macro Factors Reassert Themselves
There will be occasions when the macro influences are reasserted, which happened in September.
Value Continues To Underperform
August factor performance was more of the same: Value underperforming everything else and extending its losing streak relative to Growth.
Evaluating Real Estate Investment Trusts
In mid-2013 we developed a multi-factor model to select individual REITs, figuring that we could exploit an area of the market that is uncrowded from a factor and quantitative standpoint. The results have been outstanding, with the buy-rated securities outperforming the sell-rated securities by 45% since the model went live.
July Factor Performance
With the exception of Low Volatility and Profitability, all other factor categories produced positive factor performance in July. The month was eventful, however, as Momentum produced a +4% spread through July 12th, only to give up more than half of that advantage as interest rates rolled back over.
Rotation From Info Tech To Financials Drives Factor Performance
Factors were impacted in June by: 1) Information Technology underperformance; 2) Financials’ renewed strength; and, 3) defensive and low volatility stocks lagging.
Value Struggles Continue… Rinse, Repeat
Value can’t catch a break in 2017; every month has produced a negative performance spread. Price-to-Book has been the worst single Value factor this year, hurt by the heavy Energy and Financials weight in its cheap quintile.
Value Continues to Struggle in 2017
Value has taken its lumps to start 2017, but is it really that bad for the factor and its dedicated followers?
In Uncertain World, Investors Reward Growth
With the “Trump Trade” in question, investors have been flocking to companies delivering tangible results.
February Factor Performance
Low Volatility was in favor once again during February after struggling the previous month. Starting in September, the factor has continuously reversed the previous month’s performance.
September Factor Performance
Value, Growth, and Profitability were all negative, while Momentum turned around its recent negative performance streak.
Rough 2016 For Momentum
After performing well since the 2009 meltdown, Momentum is having its first noticeably poor year. The magnitude of the underperformance is in line with other past years of poor performance. Materials and Energy have been the main drivers.
July Factor Performance
Value was the only factor category that worked during July. Being the one factor that currently offers rising interest rate exposure, Value has performed inversely to every other category for most of 2016.
June And First Half Factor Performance and The Brexit Impact
Factor performance was muted prior to the vote; it turned volatile in the remaining days of June following. Momentum was the only factor to work before and after June 23rd — the day of the Brexit vote.
All Or Nothing Performance Continues
In a reversal of factor performance, Value underperformed while everything else worked well.
Factors Continue To Underperform
Similar to March, Value was the only factor to perform well in April. Profitability, Momentum, and Volatility all had spreads worse than –5%.
Factor Performance Reverses
With the exception of Value, March was a bad month for quantitative factor performance. Every other factor category we follow underperformed, with Momentum posting its second consecutive –5% spread.
Momentum Trouble
Momentum reversed in February, primarily due to rallying Materials stocks. Value and Profitability both performed well.
Paying Up For Protection
While most factors performed well during the January sell-off, those providing stability worked the best. Low Volatility, Profitability, and Size were notable outperformers.
Momentum Hit Extreme Rough Patch
Despite one of its worst five-day performance stretches in early October, the Momentum factor bounced back nicely and performed well the rest of the month.
Short Interest Is A Valuable Tool
The Short Interest Ratio performs well as a factor; on both the long and short sides.
Oil Impacting Factor Performance
Value and Profitability performed well during August. Market Cap was a surprise underperformer given the stock volatility.
Momentum Continues To Shine
Energy And Materials Driving Momentum Volatility