Quantitative Strategies
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).
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.