Quant Mashup - Factor Research
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
- 1 hour 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,
- 1 week 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
- 2 weeks 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.
- 2 weeks 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
- 4 weeks 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
- 1 month 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
- 1 month 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
- 1 month 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,
- 1 month 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
- 2 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
- 2 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
- 2 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,
- 2 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,
- 2 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
- 3 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
- 3 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
- 3 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
- 3 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
- 4 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
- 4 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
- 4 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
- 4 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
- 5 months ago, 20 Aug 2018, 09:21am -
Factor Exposure: Smart Beta ETFs vs Mutual Funds [Factor Research]
Investors can express factor views via smart beta ETFs or mutual funds Some mutual funds offer higher factor exposure than smart beta ETFs Given higher fees, strong views on expected factor performance are required INTRODUCTION Similar to wind and water eroding the strongest mountains over time,
- 5 months ago, 13 Aug 2018, 12:05pm -
Momentum Variations [Factor Research]
The simplicity of the Momentum factor can be intellectually challenging Various alternative Momentum versions highlight remarkable similar return profiles The robustness is an attractive characteristic of the investment strategy INTRODUCTION What do selfies, the Kardashians, Crocs, blue cheese, and
- 5 months ago, 6 Aug 2018, 11:30am -
Factors: Shorting Stocks vs The Index [Factor Research]
Most factor investing research is based on long-short stock portfolios Investible risk premia strategies often feature a short index position Trade-off between theoretical alpha and implementation costs & efficiency INTRODUCTION Amundi, a French asset manager, was the first institution to launch
- 5 months ago, 30 Jul 2018, 09:40pm -
ETFs, Smart Beta and Factor Exposure [Factor Research]
Factor exposure analysis can be used to derive factor themes Smart beta ETFs offer relatively low factor exposure It is all about how factors are defined INTRODUCTION The Austrian energy drinks company Red Bull advertised for almost two decades that Red Bull “gives you wings” and improves a
- 5 months ago, 23 Jul 2018, 12:17pm -
Stock Portfolio Optimization [Factor Research]
Portfolios frequently contain stocks representing duplicate factor risks or insignificant weights An optimisation process focused on factor exposure can increase the portfolio efficiency Increasing or decreasing factor exposure requires a view on expected factor performance and risks INTRODUCTION
- 6 months ago, 16 Jul 2018, 11:52am -
Impact of Single Stocks On Factor Returns [Factor Research]
Factor portfolios are typically created by equal weighting stocks The impact of single stocks is therefore reduced compared to market-cap weighted indices The FAANG stocks impacted factors differently INTRODUCTION The famous FAANG quintet of Facebook, Amazon, Apple, Netflix, and Google has driven
- 6 months ago, 11 Jul 2018, 05:32am -
Factor Crowding Model [Factor Research]
Crowded factors exhibit higher drawdowns than uncrowded factors A multi-metric approach can be successfully applied to measure factor crowding Effective in reducing factor drawdowns and volatility, but less meaningful for returns INTRODUCTION Architects devoted to creating large public facilities
- 6 months ago, 9 Jul 2018, 09:04am -
Factor Olympics 1H 2018 [Factor Research]
Factor performance in 1H 2018 is comparable to 2017 The Size factor has taken the lead, likely reflecting the threat of global trade wars Value has generated the most negative returns across regions INTRODUCTION We present the performance of seven well-known factors on an annual basis for the last
- 6 months ago, 2 Jul 2018, 12:43pm -
Measuring Factor Crowding via Valuations [Factor Research]
The Value factor has generated flat returns over the last decade, which has been challenging for the most dedicated Value investors. Given that the average mutual fund holding period is three years, investors might question if the Value factor has become a contrarian call, which arguably makes it
- 6 months ago, 25 Jun 2018, 10:46pm -
Sector vs Country Momentum [Factor Research]
The Momentum strategy can be applied to stocks, sectors and countries Sector and country Momentum portfolios generate positive excess returns However, cross sector & country and single stock Momentum portfolios generate higher risk-return ratios INTRODUCTION When a graduate joins the M&A
- 7 months ago, 19 Jun 2018, 12:34am -
Skewness as a Factor [Factor Research]
Skewness is a feature of stocks with high firm-risks Stocks with positive or negative skewness outperform the market Can partially be explained by the Size factor INTRODUCTION Many investors started their investment career at an early age, typically buying a stock that showed an enticing performance
- 7 months ago, 11 Jun 2018, 10:32am -
Market Timing with Multiples, Momentum and Volatility [Factor Research]
Equity multiples have been elevated in recent years Using valuation multiples for allocation decisions is a challenging strategy Momentum and volatility-based strategies are more attractive INTRODUCTION In recent years the stock market in the US has been expensive on a variety of valuation
- 7 months ago, 4 Jun 2018, 08:30am -
Tactical Mean-Reversion [Factor Research]
The Mean-Reversion factor is driven by volatility Allocating tactically when volatility is high generates an attractive payoff profile The strategy can be considered as a tail risk hedge for equity portfolios INTRODUCTION Our most recent research note focused on the Mean-Reversion factor (please see
- 7 months ago, 28 May 2018, 11:50am -
Mean-Reversion Across Markets [Factor Research]
Volatility spiked in the first quarter of 2018 when global stock markets declined, which was mainly due to concerns on proposed tariffs by the US government and rising interest rates. Since then markets recovered and volatility declined again, but higher interest rates are likely to have a negative
- 8 months ago, 21 May 2018, 08:51am -
Alpha Momentum [Factor Research]
Stocks can be ranked by alpha instead of stock returns Alpha Momentum generates a higher and more consistent performance than Price Momentum Momentum crashes are reduced significantly and risk-return ratios increase INTRODUCTION Alpha in finance is shrinking continuously as investors are getting
- 8 months ago, 14 May 2018, 09:54am -
Value Factor - Comparing Valuation Metrics [Factor Research]
This research note was originally published at Alpha Architect. INTRODUCTION Mirror, mirror, on the wall – which is the fairest of them all? Recent commentary (to include a recent Barron’s article) seems to suggest that value is dead and may never come back. Of course, most of these comments
- 8 months ago, 7 May 2018, 11:34am -
Equity Factors and Inflation [Factor Research]
We recently published a research note on the relationship between factor returns and real GDP growth (Equity Factors & GDP Growth), which highlighted that some factors exhibit pro-cyclical while others have anti-cyclical characteristics. The Value and Size factors showed strong returns when
- 8 months ago, 30 Apr 2018, 10:50am -
Value Factor: Improving the Tax Efficiency [Factor Research]
The tax efficiency of the Value factor can be improved by reducing exposure to dividend-yielding stocks Improving the tax efficiency reduces the performance in Europe and Japan, but not in the US Reducing turnover can be considered for minimising capital gains and stamp duty taxes INTRODUCTION Tax
- 8 months ago, 23 Apr 2018, 11:27am -
Low Volatility Factor: Interest Rate Sensitivity and Sector-Neutrality [Factor Research]
The interest rate-sensitivity of the Low Volatility factor has increased in recent years Mainly due to the sectoral biases from the long portfolio Sector-neutrality reduces the interest rate-sensitivity, albeit at the cost of performance INTRODUCTION Low Volatility strategies have become popular
- 9 months ago, 16 Apr 2018, 09:33am -
Smart Beta or Smart Marketing? [Factor Research]
Smart beta ETF investors seem to ignore empirical evidence Excess returns from smart beta are substantially different from factor returns Smart beta ETFs offer little diversification for an equity-centric portfolio INTRODUCTION Assets under management in smart beta products surpassed $1 trillion in
- 9 months ago, 9 Apr 2018, 10:49am -
Factor Olympics Q1 2018 [Factor Research]
2018 started negative for the majority of factors Momentum, Quality and Growth showed the strongest performance Low Volatility, Dividend Yield and Value generated negative returns INTRODUCTION We present the performance of seven well-known factors on an annual basis for the last 10 years and the
- 9 months ago, 2 Apr 2018, 11:47am -
Factor Exposure Analysis: Dow Jones [Factor Research]
Factor exposure should be considered a source of returns as well as of risk Factor biases can be measured top-down or bottom-up The results of the two approaches do not necessarily reconcile INTRODUCTION Factor investing has become immensely popular in recent years and assets in smart beta products
- 9 months ago, 26 Mar 2018, 09:31am -
Factor Portfolios: Turnover Analysis [Factor Research]
Some ETF investors claim that passive index products are superior to actively managed funds due to lower turnover and therefore less transaction costs. While this is partially true, most investors are unlikely to be familiar that indices such as the S&P 500 have a relatively high amount of
- 10 months ago, 19 Mar 2018, 10:03am -
Equity Factors and GDP Growth [Factor Research]
Economic cycles have a clear impact on factor performance Some factors show pro-cyclical while others highlight anti-cyclical characteristics Given that real GDP is not published in real-time, it is unlikely effective for factor selection INTRODUCTION Financial commentators frequently explain a
- 10 months ago, 12 Mar 2018, 06:55am -
Dividend Yield Combinations [Factor Research]
According to MorningStar assets under management of smart beta products breached $1 trillion in 2017 and more than half of the assets were invested in just three factors: Value, Growth and Dividend Yield. Naturally there is a significant amount of empirical evidence that suggests Value stocks
- 10 months ago, 5 Mar 2018, 03:46am -
Factor Construction: Portfolio Rebalancing [Factor Research]
Factor portfolios do not benefit significantly from intra-month rebalancing However, too infrequent rebalancing leads to lower risk-return ratios The robustness of factor performance at different rebalancing periods is one of the advantages of factor investing INTRODUCTION Creating factor portfolios
- 10 months ago, 26 Feb 2018, 10:00am -
Sequential Model: Sorting by 5 Factors [Factor Research]
The sequential model ranks stocks by factors sequentially Allows investors to prioritise factors and results in concentrated portfolios However, the factor sequence matters and only a few factors can be considered INTRODUCTION In a recent research report we showed how investors can combine factors
- 11 months ago, 19 Feb 2018, 12:20pm -
