Latest Blog Posts
In capital markets investing, the greater fool theory[1] states that an investor buying a risk asset, no matter its current valuation, can always find a “greater fool” to buy it later at a higher price. The theory rests on the subjectivity of valuations and the fact that beauty (the attractiveness of the investment) is always […]
The US market soared in November, producing one of the highest monthly returns since at least 1982. With regard to factor returns, the month started out fairly slowly. But things changed on November 9, when it started to look like the pandemic could end someday. We wrote about the impact the news from Pfizer on […]
Returns since Nov. 9 show investors’ ideas about the economy have flipped, favoring Value stocks against the Momentum factor.
November 9 was a profoundly bad day for Momentum. In most regions we cover closely, Momentum’s return for the day was between seven and 10 standard deviations below expectations[1], and the return was the worst of any day going back to 1999, according to Qontigo’s medium-horizon models. The year-to-date return for Momentum in the US went from positive to negative overnight, but remained positive in other regions, albeit far lower.
The third quarter saw a continuation of 2020’s themes for the STOXX® Factor Indices. Signs of renewed life have appeared, however, with Multi-Factor seeing a 0.8% return.
The cost of implementing factor strategies appears at only a fraction of the premia they generate, suggesting they can take significant inflows before reaching full capacity.
Analytics | Portfolio Risk Management
Stressed-Out Dividend Yield Strategies Could Leave Some Wiggle Room in Your Risk Budget
Active strategies that tilt on dividend yield have suffered mightily during the Covid-19 pandemic. Dividend yield ETFs, for example, have strongly underperformed the broader US market, as investors lost confidence in companies’ ability to pay dividends. At the same time, the active risk of these ETFs has surged. Not surprisingly, Axioma’s Dividend Yield factor in […]
Analytics | Portfolio Risk Management
Current Nagging Concerns—and One Bit of Good News—for Active Managers in the US
The US market hit an all-time high this week. So are we finally out of the volatility woods? Not by a longshot. While US predicted risk as measured by Qontigo’s short-horizon fundamental model has retreated substantially, it remains in the top decile of values relative to where it has been historically. It would have to […]
The STOXX Global 1800 Index rises in month, helped by continuing strength in US shares and a slump in the dollar.
Analytics | Portfolio Risk Management
Emerging Markets lag China in equity-market gains, but also risk
China’s weight may dominate Emerging Markets, but returns and risks have gone their own way. Emerging Markets in aggregate have not mirrored China’s recent equity-market gains. And while China’s risk has spiked, Emerging Markets’ risk has continued to fall. Chinese stocks rallied as Emerging Markets failed to report YTD gains Chinese stocks rallied for eight […]
Analytics | Portfolio Risk Management
Tracking error of Russell 2000 vs. Russell 3000 soars to 25-year high…and yours could too
Equity markets have mostly recouped the losses of the downturn that started in February of this year, but at different rates. Notably, the broad market Russell 3000 index ended the first half down just 3.5%, whereas the small-cap Russell 2000—unable to benefit from the strength in such names as Amazon, Apple, Microsoft, Tesla and others […]
Much of the recent market turmoil has been driven by worries about debt. Granted, debt is not a bad thing, per se. But the fact that many households and corporations must now borrow extensively just to stay afloat is a major concern. This is reflected in both wider credit spreads and the fact that the […]
