Quantitative Strategies
Speculative Growth Selloff: Near The End?
The group is back to where it was before the pandemonium began, both on a price and valuation basis. While the move is likely to overshoot below median and historical lows, we think we’re closer to the final chapter than the midpoint.
Factor Performance: A Tale Of Two Halves
Through the first two-and-a-half months of 2022, factor performance maintained the trend established in 2021: Value outperformed everything else and Growth lagged. When the 10-2 year differential dropped near 20 bps on March 16th, Growth stocks outperformed from that day forward, while Profitability and Value suffered.
A Detour On The Way To The Moon
It’s been a year since the retail crowd on WallStreetBets—a Reddit forum—banded together to “stick it to the shorts.” The event was short-lived, but the effects are still being felt throughout the market.
2021 Quantitative Factor Performance: Year In Review
After years of underperformance, Value was finally productive—it was the best factor we track. In general, overall factor performance was good, but worked much better within small- and mid-caps compared to large-caps. Value was especially superior outside of the large-cap universe.
Value Or Growth? Size Matters
Growth has been outperforming Value since 2007, but the magnitude varies widely by market cap. Large Cap has seen Growth outperform Value by a greater amount and with more consistency than has the Small Cap space. We use the S&P style indexes for reference.
Financials Growing Up
Financials have dramatically improved their Growth profile; a move that makes the traditionally value-oriented sector one of the most well-rounded segments of the equity market.
High Quality Growth Performs Well
In 2020, speculative Growth was easily the best-performing portion of the market. However, in 2021, that has reversed: Growth companies with negative earnings are underperforming everything else.
Val-Mo (Finally) Explodes Higher
After years of underperformance, investors who pay attention to both Momentum and Value are finally being rewarded. The turnaround has been substantial, but the relative valuation of expensive Momentum vs. cheap Momentum stocks is still extremely elevated by historical standards.
Rotation Into Value Continues
While Value outperformance continued throughout the first quarter, March saw higher-quality Value names take the lead. Prior to March, it was mostly the unprofitable companies that had driven the rotation.
Short Performance And Short Interest Both Revert
The Reddit-driven January performance of heavily-shorted stocks reversed in February, but not nearly enough to reverse all the previous gains.
YOLO Mania
The Redditors came for the hedge funds, and chaos ensued. We think that when the dust settles, the Reddit crowd will be the spark that allowed more powerful market players to inflect the real pain. Our thoughts, from experience, on why this happened and how we try to avoid it.
GS Scores Perform Well Amid 2020 Volatility
The GS Scores handled the chaotic, 2020 market well, turning in a +10.1% return spread. The lone black-eye was November, when the Pfizer vaccine news upended quant factors and produced the worst single-day performance in GS Score history.
Factor Chaos
The November 9th Pfizer vaccine news compressed an entire Momentum reversal into one historic day. Factor performance easily broke records looking back over our entire history of data. While great news for the general public, it was awful news for Momentum indicators.
Large Cap Growth, Without The FAANG
FAANG has dramatically outperformed Large Cap Growth the past ten years, but is has become cheaper and slightly less growth-oriented in the process. We examine the extent FAANG performance has carried through to the rest of the Large Cap Growth universe and how to get growth without them.
Style Performance Differs Based On Market Cap
Growth continues to lead within Large Caps while Value has the advantage among the Mid and Small Cap arena.
Growth Remains Undefeated
What can slowdown the outperformance of Growth stocks? It turns out, the answer to that persistently-unanswerable question is “Not much.” Not even a global pandemic-driven sell-off and swift rebound. From the market high in February through June 30th, Growth handily outperformed every other factor.
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).