Source: https://www.linkedin.com/feed/update/urn%3Ali%3Ashare%3A6608455668355657728
#PerfectStorm for #Factor #Quants:
The #rules-based #method of dissecting #stocks by traits like their apparent cheapness or how much they’ve gained recently is misfiring again.
Days like Sep. 9 need explaining. The S&P 500 Index closed flat, equity volatility cruised around its five-year average and commodities were unexciting. Yet #factor investors experienced the biggest rotation in a decade after value briefly broke out of its funk at the expense of high-flying momentum stocks.
#Quants who failed to diversify into winners like low volatility are in soul-searching mode. Are factors like #value structurally broken? Can market-neutral styles roar back to life over the long haul?
Some quants are duly revamping strategies. One team tweaked #models to penalize #exposure to highly correlated factors and to make allocations more defensive against downside risks. It’s now on the hunt for smarter definitions of #value.
Naturally some #funds are also deploying #alternativedata and #machinelearning in a bid to re-invent now widely known #factorstrategies.
Newfangled methods are a contentious move for a community that’s netted billions riding established factors back-tested over decades. Invesco’s Elsaesser for one is skeptical: “It’s like a perfect storm for factors…
