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Are cheap stocks killing Quant Funds' performance? It would seem so

Jun 18, 2019

Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions
Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions

 

  • Quant funds have struggled to outperform this year and have been bleeding assets over the last year, a Barron’s article highlights
  • The underperformance can be blamed on “their persistent faith in value stocks” which Barron’s says “looks to be a prime culprit”
  • While quant funds have gained significant assets over the last decade, the past year has seen quite the opposite as performance has faltered 
  • Recently, amid market turbulence, fundamentally focused active managers have outperformed their quant counterparts
  • Last month, only 34% of quant funds managed to beat their respective benchmarks while large-cap active managers’ outperformance surpassed 50%
  • Barron’s quotes the CIO of the largest quantitative fund manager, AQR, who said of recent performance, “Quant stock selection has been terrible.”

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  • Value stocks, it is surmised, may be the culprit; a bet on their comeback may be the source of quant funds’ underperformance
  • The underperformance of value, in general, during this bull market is a great mystery of the day
  • Value investors buy value stocks expecting them to revert to the mean, delivering outperformance
  • Despite some short rallies, that reversion to mean has yet to materialize over the last 10 years of this bull market
  • Value strategies have seen significant outflow this year with just the iShares Russell 100 Value ETF (IWD) losing $4 billion is assets in 2019; that is just one example
  • Quant funds still appear to be counting on value to outperform, as a Bank of America analysis shows quant funds still well positioned in value stocks

 

We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.
We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.

Russell 1000 Index vs. Russell 1000 Value Index - 1 Year

russell 1000 vs russell 1000 value

Source: Bloomberg

 

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Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS