Themes from the quarterly Quantitative Beta Research Summit
- Factor performance was mixed, on balance, with some factors recovering from losses in the first quarter while others continued along their recent trajectories.
- Equity factor volatility remained high: Size experienced its best quarter since 2009 while value suffered its second-worst quarter in 30 years (exceeded only by losses in Q1).
- Merger arbitrage bounced back over the quarter; however, other event-driven factors were broadly negative.
- Macro factors declined as historically sharp market reversals upended both time-series momentum and relative value momentum positioning across asset classes.
- We continue to see the outlook for equity value as attractive; additionally, we have upgraded our view for equity quality because of the emergence of the most compelling valuation spread since the dot-com bubble.
Following one of the most precipitous declines in the past century, risk assets recorded their best quarter since 1998. The extreme pivot was driven by unprecedented fiscal and monetary stimulus and improving sentiment (at least, over much of the quarter) about the path of economic recovery from the COVID-19 pandemic. Global equities were up 20%, credit spreads tightened, and oil prices nearly doubled as markets looked through a plunge in economic data at the beginning of the quarter and a record number of earnings guidance suspensions. Against this backdrop, the factors that we favor were mixed. Certain factors bounced back after suffering during Q1: Equity size experienced its best quarter since 2009, and merger arbitrage and FX carry both ended the quarter positive. Other factors continued their previous trajectories: Equity momentum was up yet again, while equity value extended its drawdown as investors’ preference for growth remained unshaken (EXHIBIT 1).
Factors were mixed in Q2, though they remain down, in aggregate, over the past year
EXHIBIT 1: QUANTITATIVE BETA STRATEGIES LONG/SHORT FACTOR RETURNS
Please be aware that this material is for information purposes only. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. JPMorgan Asset Management Marketing Limited accepts no legal responsibility or liability for any matter or opinion expressed in this material.
The value of investments and the income from them can fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future.
The views contained herein are not to be taken as an advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance.
Copyright 2020 JPMorgan Chase & Co. All rights reserved