The battle between value and momentum wages on.
Last week, there was massive reversal in this year’s trend, which has been for momentum (and low vol) to outperform value (and size). Last week and today look to be a miniature “quantageddon” (a term Goldman coined after a large reversal in the value/momentum spread in early 2016), because the worst performer last week was the hedge fund crowding factor… we shall see how the rest of this week carries out.
Funny enough, just last week I wrote about trend finally catching good performance but that correlations were nearing a near-term bottom with Carry. The sustained rally in trend (going on since March of this year) has been abruptly put to a halt.
I mentioned I would discuss how the term “smart beta” may have affected correlations in factors. This research is still ongoing, though I will put some initial thoughts to paper:
- Momentum’s correlation with other factors is usually a good way to see if “crowding” exists
- Google’s search term frequency for “smart beta” may be a good proxy for the popularity of the term
- There doesn’t appear to be any major form of crowding, using these metrics.
Some rolling 1-year correlations for you:
A normalized frequency plot for search terms associated with “Smart Beta”, from Google:
So, the rise in search terms for smart beta really began in earnest in 2013/2014. Thoughts ongoing…
Last Week’s Returns
Factor Returns: Year-to-date
Factor Returns: Trailing
Notes to performance
- Past performance does not guarantee future returns
- The factor returns may not correspond to the factor returns inside the factorE application.
- The equity styles are market neutral, meaning these returns are on top of equity market returns
- A csv download will be made available for those who want to show trailing returns in another format