Protracted poor performance of certain value formulations has provoked intense but muddled discussion about the viability of value investing. We apply a systematic lens to clarify the fundamental and behavioral drivers of value's performance and to offer coherent perspective on the outlook. We consider nuance that is often glossed over in prevalent narratives, including the multifaceted and evolving nature of value concepts and investing approaches.
Are alternative data and machine learning the future of investment management? Will they fundamentally transform the quantitative investment process? In this discussion, we address these questions, separating the signal from the noise, and describe our vision of the frontiers of quantitative investing over the next few years. We share where we believe new tools and methods will have the greatest impact on the systematic investment process, and we consider risks and challenges in their application that are relevant to asset owners.
The COVID pandemic has generated historic volatility amid enormous uncertainty about the virus’s progression, its economic impact, and the effectiveness of policy countermeasures. For investors who have been trying to assess the market’s response and chart a course of action, there is little systematic research on the investment impacts of geopolitical shocks to guide them. In this discussion, we shed new light on how markets react to “shocks,” based on analysis of a proprietary events dataset that includes epidemics as well as civil unrest, acts of terror, and disasters. We also consider how investors process systemic geopolitical uncertainty and whether cognitive biases make them prone to risk neglect. We discuss implications for portfolio managers and allocators.
Read MoreWhile passive investing has garnered enormous media attention, we understand little about how it may be affecting market behavior. Does it reflect a high level of efficiency that prevents active management from adding value? Or might its very success create new forms of opportunity as well as risk? This talk explores common misconceptions around “the rise of passive” and examines novel evidence regarding its potential impact on market efficiency and fragility. We consider implications for both active managers and asset owners.
Read MoreCrashes are regular features of markets, and they can have a dramatic impact on long-term total returns. Even so, surprisingly few investors explicitly factor crash risk into the design of their portfolios. In this presentation, we compare prevalent approaches to reducing crash exposure, contrasting their unique benefits, hidden risks, and relative efficiency. We show how crash risk may be concealed in alternatives and private market strategies, and we consider how premium harvesters may underwrite such risk more efficiently and transparently.
Read MoreAs factor investing strategies proliferate, investors face a greater challenge than ever in evaluating alternatives. Starting with a case study involving momentum, we demonstrate benefits of sophisticated factor implementations in more precisely capturing drivers of returns premia and in controlling risk. We expose how simple approaches impose often-overlooked restrictions on the investment process, and we examine potential the costs and risks. Along the way, we outline a framework to compare factor investing implementations.
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