Quant Mashup - Factor Research
Quant Strategies: Theory vs Reality [Factor Research]
The live performance of quant strategies is significantly worse than in backtesting Factor investing returns from research are frequently challenged as being overstated However, the performance of smart beta and long-short multi-factor funds match theoretical returns INTRODUCTION When pitching an
- 5 days ago, 12 Aug 2019, 10:33am -
Low Vol Factor: From Obscurity to Stardom [Factor Research]
Given the popularity of Low Volatility, investors might expect structural shifts in the factor characteristics Betas, valuations, sector biases, interest rate sensitivity, and factor exposures are highly time-varying Although these are worth monitoring from a risk perspective, none seem particularly
- 1 week ago, 5 Aug 2019, 10:00am -
PMI & Equity Factor Performance [Factor Research]
Value and Size have a positive relationship with the PMI, similar to the S&P 500 Indicates that risk sentiment is a core driver of factor performance Investors can consider incorporating variables like the PMI in a risk management framework INTRODUCTION A physicist, a chemist, and an economist
- 3 weeks ago, 24 Jul 2019, 09:59am -
ESG: What is Under the Hood? [Factor Research]
The ESG factor generated positive returns since 2011 Strong sector biases (long tech & short discretionary) explain the performance Residual returns from ESG investing are essentially zero INTRODUCTION Investing is complicated as it is simple and complex at the same time. Common advice for new
- 1 month ago, 15 Jul 2019, 09:52am -
Indexing: Out With Tradition? [Factor Research]
Equal and fundamentally weighted equity indices outperformed market cap weighted in the US since 1990 The higher returns are explained by exposure to Value and Size factors The outperformance is not consistent across time given factor cyclicality THE RISE OF INDICES There are now more than 3.7
- 1 month ago, 8 Jul 2019, 09:41am -
Factor Olympics 1H 2019 [Factor Research]
Most factors generated positive returns in 1H 2019 Low Volatility produced the best and Value the worst performance Factor performance is comparable in the US & Europe, but markedly different in Japan INTRODUCTION We present the performance of five well-known factors on an annual basis for the
- 1 month ago, 1 Jul 2019, 01:00pm -
Mapping My Mind: Value Factor [Factor Research]
There is consistency in the performance of the Value factor across markets and asset classes Allows to create a coherent framework of how to think about Value Suggests a global driver of factor performance INTRODUCTION Our research aims to educate investors by bridging the gap between academic
- 1 month ago, 24 Jun 2019, 10:22am -
A Horse Race of Liquid Alternatives [Factor Research]
Investors can access alternative strategies via mutual funds and ETFs Most of these show moderate to high correlations to equities, which is concerning Bonds would have been a better diversifier in recent years INTRODUCTION Investing is challenging as it is complex and complicated, which requires
- 2 months ago, 17 Jun 2019, 09:44am -
The Case Against Small Caps [Factor Research]
The performance of the Size factor in the US was positive since 1926, but not particularly attractive Returns in Europe were more favorable, but not in Japan Alternative metrics to market capitalization would not have resulted in better performance SMALL VERSUS LARGE STOCKS In the David vs. Goliath
- 2 months ago, 10 Jun 2019, 09:54am -
How to Allocate Smartly to Smart Beta [Factor Research]
This research note was originally published in the Beyond Beta magazine from ETF Stream. Here is the link. SUMMARY Single factor excess returns are attractive over the long-term, less in the short-term Comparing popular asset allocation models does not highlight one superior methodology Multi-factor
- 2 months ago, 3 Jun 2019, 12:56pm -
Cheap versus Expensive Countries [Factor Research]
A global value portfolio on country level features structural country biases Returns were positive since 1990, but lacked consistency Value on country and single stock level exhibit the same trends, highlighting common performance drivers INTRODUCTION Holding Value stocks is emotionally challenging
- 2 months ago, 27 May 2019, 02:00pm -
Improving the Momentum Factor [Factor Research]
The performance of the Momentum factor in the US has been poor since 2000 Fundamental valuation spreads were ineffective for improving the performance Combinations with other factors and factor volatility filters would have yielded better results INTRODUCTION John H. Cochrane of the Hoover
- 2 months ago, 20 May 2019, 12:38pm -
Hedge Fund ETFs [Factor Research]
Core hedge fund strategies are available as low-cost and transparent ETFs The performance of hedge fund ETFs has been comparable to that of their benchmarks ETFs have only captured 1% of hedge fund assets INTRODUCTION As Amazon has been decimating large parts of the retail industry over the last two
- 3 months ago, 13 May 2019, 09:18am -
Option-Based Strategies: Opt In or Opt Out? [Factor Research]
Option-based strategies generated better risk-adjusted returns than the S&P 500 over the last 30 years Investors should be wary of buying options and focus on harvesting the volatility risk premium by writing options Option-based strategies are an interesting alternative to long-short equity
- 3 months ago, 7 May 2019, 10:26am -
Equity Factors & The Mighty US Dollar [Factor Research]
The US dollar had a slightly negative relationship with the stock market since 1996 Some equity factors are more sensitive to changes in the US dollar than others On average the sensitivity is zero, but as often averages are misleading INTRODUCTION The Economist’s Big Mac Index measures if
- 3 months ago, 29 Apr 2019, 10:46am -
Replicating Famous Hedge Funds [Factor Research]
Diverse hedge fund strategies can be replicated via factor-mimicking portfolios The analysis highlights that most returns are explained by factors, not alpha However, hedge funds can create value by harvesting factor returns efficiently via portfolio construction INTRODUCTION In 1973, the U.S. Food
- 3 months ago, 23 Apr 2019, 10:24am -
Warren Buffet: The Greatest Factor Investor of All Time? [Factor Research]
A factor exposure of Berkshire Hathaway reveals structural factor tilts Long Value, Size, Quality, and Low Volatility factors and short Growth and Dividend Yield Warren Buffet generated little alpha, but is highly skilled at harvesting factor returns SAINTS AND STAR INVESTORS The Vatican waits at
- 4 months ago, 16 Apr 2019, 09:45pm -
Multi-Factor Smart Beta ETFs [Factor Research]
Investors have leaned towards multi-factor over single-factor products in recent years The factor selection and portfolio construction of multi-factor ETFs can be challenged Multi-factor ETFs often feature factors, such as growth, which are not supported by academic research while lacking exposure
- 4 months ago, 8 Apr 2019, 09:57am -
Factor Olympics Q1 2019 [Factor Research]
2019 has started favorable for factor investors, compared to 2018 Low Volatility generated the best and Value the worst performance Factor performance is comparable in the US & Europe, but different in Japan INTRODUCTION We present the performance of five well-known factors on an annual basis
- 4 months ago, 1 Apr 2019, 09:40am -
Black Swans, Major Events and Factor Returns [Factor Research]
It is questionable if investors should prepare for catastrophic events Factor returns are almost random after black swan and major events Simple diversification is likely the best option for the expected and unexpected INTRODUCTION Investors fear black swan events, although it can be argued that
- 4 months ago, 25 Mar 2019, 09:27am -
Smart Beta Asset Allocation Models [Factor Research]
Most smart beta strategies outperformed the market since 1990, but few have in recent years Diversifying across strategies mitigates the risk of underperformance Various asset allocation models for creating multi-factor portfolios highlight similar results INTRODUCTION The appearance of smart beta
- 5 months ago, 18 Mar 2019, 09:21am -
GARP Investing: Golden or Garbage? [Factor Research]
GARP aims to combine Growth and Value investing GARP stocks have outperformed the market since 1989 It is somewhat perplexing how well the strategy worked VALUE VERSUS GROWTH With their thousands of employees, suites of products, international reach, and legendary histories, General Electric (GE)
- 5 months ago, 12 Mar 2019, 10:32am -
Benchmarking Smart Beta ETFs [Factor Research]
Long-only factor portfolios can be used for benchmarking smart beta ETFs Results highlight minor tracking errors Likely explained by relatively homogenous factor definitions by ETF issuers INTRODUCTION Investment professionals are not known for their creativity, but that is perhaps only because
- 5 months ago, 4 Mar 2019, 10:44am -
Minimum Variance Versus Low Volatility [Factor Research]
The largest smart beta Low Volatility ETF is technically a Minimum Variance strategy Low Volatility and Minimum Variance have comparable and attractive characteristics However, both currently feature a high sensitivity to interest rates INTRODUCTION The Low Volatility factor was the best performing
- 5 months ago, 25 Feb 2019, 10:58am -
Factor Investing in Financials, Real Estate & MLPs [Factor Research]
Beating benchmarks is challenging for fund managers, even in unique sectors Factor performance in financials, REITs, and MLPs is comparable to the cross-sector factor returns Classic factor investing strategies are likely more attractive than industry expertise INTRODUCTION Stating that active
- 5 months ago, 18 Feb 2019, 11:35am -
Smart Beta: Broken By Design? [Factor Research]
SUMMARY Smart beta excess returns are different from factor returns The Low Volatility factor shows the highest discrepancy between theoretical and realized returns Investors might be better served by embracing long-short factor products REALITY DYSFUNCTION Steve Jobs’s “reality distortion
- 6 months ago, 11 Feb 2019, 03:58pm -
Value, Momentum and Carry Across Asset Classes [Factor Research]
Cross-asset multi-factor exposure might be an attractive diversifier for an equity portfolio Factors share trends across asset classes, indicating common drivers However, relationships are time-varying, increasing complexity and risks INTRODUCTION There is a 72% probability of the San Franciso Bay
- 6 months ago, 28 Jan 2019, 09:52pm -
Corporate Debt In The Chinese Stock Market [Factor Research]
China exhibits the world’s highest corporate debt as % of GDP However, Chinese stocks are not significantly more levered than U.S. stocks Asset and debt growth has stalled in 2018, likely indicating an economic slowdown INTRODUCTION The McKinsey Global Institute published an influential study in
- 6 months ago, 22 Jan 2019, 11:09am -
ESG Investing: Too Good To Be True? [Factor Research]
ESG factors generated positive excess returns since 2009 Show positive exposure to Low Volatility & Quality and negative exposure to Value & Size Factor exposure is likely structural and not temporary INTRODUCTION BlackRock is aggressively launching products with high environmental, social,
- 7 months ago, 14 Jan 2019, 09:28am -
An Anatomy of Smart Beta Value ETFs [Factor Research]
Smart beta Value ETFs are relatively homogenous Some show high exposures to other equity factors, which may represent risk Excess returns from smart beta are significantly lower than long-short factor returns INTRODUCTION The last ten years can be viewed as a lost decade for Value investors as
- 7 months ago, 7 Jan 2019, 09:51am -
Factor Olympics 2018 [Factor Research]
2018 was negative for classic multi-factor portfolios Low Volatility generated the best and Value the worst performance Factor performance was homogenous across global markets INTRODUCTION We present the performance of five well-known factors on an annual basis for the last 10 years, including 2018.
- 7 months ago, 1 Jan 2019, 12:48pm -
Research Compendium 2018 [Factor Research]
In 2018 we published more than 50 research notes and 4 white papers on mainly factor investing, but also on other topics like zombie stocks, replicating private equity returns, statistical arbitrage, and mutual fund performance chasing. We would like to thank you for reading and always appreciate
- 7 months ago, 24 Dec 2018, 09:48am -
Factor Investing Made In China [Factor Research]
This research note was originally published by the CAIA Association’s AllAboutAlpha blog. Here is the link. SUMMARY Common equity factors generated attractive risk-adjusted returns in the Chinese stock market Factor performance in China often mirrors global factor performance Indicates common
- 8 months ago, 17 Dec 2018, 01:20pm -
Factor Optimisation [Factor Research]
Equity factors exhibit sector biases and exposures to other common factors A factor optimisation process allows investors to create pure factors Risk-adjusted returns do not increase, but pure factors are attractive from analytical, risk and allocation perspectives INTRODUCTION When large quantities
- 8 months ago, 10 Dec 2018, 09:44am -
Private Equity: The Emperor Has No Clothes [Factor Research]
This research note was originally published by the CFA Institute’s Enterprising Investor blog. Here is the link. SUMMARY Private equity returns can be replicated with small cap equities Small, cheap and levered stocks would have achieved higher returns since 1988 Valuation and debt multiples are
- 8 months ago, 3 Dec 2018, 09:50am -
Tactical Statistical Arbitrage [Factor Research]
SUMMARY Statistical arbitrage behaves similarly across markets Volatility is the main performance driver Attractive strategy for diversifying an equity portfolio INTRODUCTION Strategies like Value or Momentum are like staples that deserve a permanent allocation in investors portfolios. In contrast,
- 8 months ago, 26 Nov 2018, 01:14pm -
The Rise of Zombie Stocks [Factor Research]
This research note was originally published by the CAIA Association’s AllAboutAlpha blog. Here is the link. SUMMARY Zombie firms, where interest payments exceed operating profits, are on the rise Zombie stocks perform surprisingly well They are expensive, volatile stocks from diverse sectors
- 8 months ago, 19 Nov 2018, 08:38am -
Equity Factors: Reducing Portfolio Turnover [Factor Research]
Portfolio turnover of equity factors can be reduced significantly by trading more conservatively However, reducing turnover does not necessarily increase risk-return ratios It all depends on transaction costs INTRODUCTION Turnover in business tends to be positive or negative, depending on the
- 9 months ago, 12 Nov 2018, 01:03pm -
The Odd Factors: Profitability and Investment [Factor Research]
The Profitability factor generated attractive returns in the US and Europe since 1990 It is difficult to explain why investors should be compensated for holding highly profitable companies The Investment factor was less attractive and is unusual from a financial analyst’s perspective INTRODUCTION
- 9 months ago, 5 Nov 2018, 09:42am -
The Dark Side of Low-Volatility Stocks [Factor Research]
This research note was originally published by the CFA Institute’s Enterprising Investor blog. Here is the link. SUMMARY Low-volatility stocks have outperformed the market over the last 25 years The strategy has reduced equity drawdowns in the US, Europe, and Japan significantly However,
- 9 months ago, 29 Oct 2018, 12:40pm -
Statistical Arbitrage in the US [Factor Research]
Statistical arbitrage has attractive strategy characteristics However, the returns are highly dependent on transaction costs Best used as a tactical strategy when volatility is high INTRODUCTION Equity markets in 2018 can be characterized by divergence. There is the US, showing strong returns,
- 9 months ago, 22 Oct 2018, 04:51pm -
Improving the Odds of Value [Factor Research]
Value investors earn a premium for holding undesirable stocks Market skewness may identify periods where the premium is more attractive The returns from the Value factor since 1926 were zero when market skewness was negative INTRODUCTION Although buying cheap stocks is intuitively appealing, holding
- 10 months ago, 15 Oct 2018, 02:14pm -
Factor Investing in Micro & Small Caps [Factor Research]
This research note was originally published by the CFA Institute’s Enterprising Investor blog. Here is the link. SUMMARY Micro caps are commonly perceived as highly risky, but potentially also highly rewarding Smalls caps generate more attractive risk-return ratios than micro caps on index level
- 10 months ago, 8 Oct 2018, 04:40pm -
Factor Olympics Q3 2018 [Factor Research]
Global factor performance in the first three quarters of 2018 is comparable to 2017 However, regional factor performance diverges, reflecting changes in monetary and trade policies Low Volatility leads and Value lags INTRODUCTION We present the performance of seven well-known factors on an annual
- 10 months ago, 1 Oct 2018, 10:46am -
Liquid Alternatives: Alternative Enough? [Factor Research]
Liquid alternatives offer hedge fund strategies in mutual fund format The correlations to the S&P 500 have been high, even of market neutral funds Diversification benefits have therefore been limited DISRUPTING THE HEDGE FUND INDUSTRY Liquid alternatives have been heralded as hedge funds for
- 10 months ago, 24 Sep 2018, 12:08pm -
Short-Term Momentum in Equity Factors [Factor Research]
Short-term momentum persists in common equity factors The persistence is strong in Value and Dividend Yield However, these results conflict with short-term mean-reversion on equity index level INTRODUCTION When Trump won the US presidential election in November 2016, small and cheap stocks started
- 11 months ago, 17 Sep 2018, 10:52am -
Volatility, Dispersion & Correlation - Friends or Foes? [Factor Research]
Higher volatility & dispersion imply higher stock market risks The relationship between correlation and risk is not linear However, these market technicals do not behave consistently across time INTRODUCTION Financial reporters frequently comment on stock market technicals like volatility and
- 11 months ago, 10 Sep 2018, 09:35am -
Chasing Mutual Fund Performance [Factor Research]
Mutual funds exhibit momentum when measured by their one-year performance Momentum disappears when more reasonable fund selection criteria are applied Performance does not seem effective for fund selection for a full market cycle CHASING PERFORMANCE Chasing mutual fund performance suffers from a bad
- 11 months ago, 4 Sep 2018, 12:03pm -
Factor Momentum [Factor Research]
The Momentum strategy can be applied to stocks, sectors, countries and factors Factor momentum shows positive excess returns across regions However, single-stock Momentum performance is comparable and less complex to implement INTRODUCTION We recently investigated applying the long-short Momentum
- 11 months ago, 27 Aug 2018, 12:07pm -
Low Volatility, Low Beta & Low Correlation [Factor Research]
The Low Volatility, Low Beta and Low Correlation factors are interrelated Low-risk factors generate attractive risk-adjusted returns, but require beta-neutrality Currently they feature moderate to high interest-rate sensitivity INTRODUCTION Coca-Cola versus Bitcoin Investment Trust, Mattel versus
- 11 months ago, 20 Aug 2018, 09:21am -