Long short equity factors are time varying and will change with economic conditions. This is easy to see when investors look at 2020. A winning portfolio in the US and Europe consisted of stability and momentum. Since the pandemic shock, value and quality have been the best performing factors. In Europe, momentum, value and quality have performed better. Counterpoint mutual funds provides this information through their factor scoreboard.
Fundamentals affect risk factor just like they affect market betas, albeit sensitivities are different. You may not be able to forecast these fundamentals, but it is still important to understand how economic shocks will impact return performance for alternative risk premia.
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1 comment:
First of all, I love your blog. Short crisp and to the point.
I think factor performance switches during recovery rallies after crashes. 2009 was the same.
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