Themes from the quarterly Quantitative Beta Research Summit
Factor performance was negative, on balance, as markets suffered from two major tail events: the economic shocks of the COVID-19 outbreak and a plunge in oil prices.
Equity factors were mixed; however, the value drawdown is now nearing dot-com bubble territory.
Event-driven factors were hit hard, suffering from both economic and technical shocks, with the merger arbitrage factor experiencing its sharpest downturn since the global financial crisis.
Macro factors were upended by spiking volatility and the fastest-forming equity bear market in modern history.
We believe in diversifying across a broad range of compensated factors while minimizing exposure to uncompensated risks; we see a heightened opportunity set following a particularly difficult quarter.
Risk assets entered 2020 on the back of one of the strongest years of the record-setting bull market and with most economists calling for continued, albeit slower, economic growth. By late January, COVID-19 had started to create a downdraft in markets; it turned into a complete free fall in February and March. As much of the world’s population was locked down to try to reduce the spread of the virus, economies came to a complete standstill. Global central banks quickly enacted dramatic stimulus measures that surpassed even those of the global financial crisis—all in an attempt to resolve liquidity challenges across markets, backstop the record influx of unemployed workers and sustain struggling small businesses until economies could be revived. All in all, it was quite a difficult backdrop for the majority of the factors that we favor (EXHIBIT 1).
Factor performance was broadly negative in Q1, with event-driven and macro factors suffering in particular
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