Consistency is not perfection, and long/short factor premiums will not always generate positive returns; however, as we review the first quarter, it is apparent that strategy factor behavior was fairly consistent with what was experienced in the macro environment.
The tracking of long/short global equity factors from the Factor Research folks may not show pretty results but it tells an economic story that makes sense. Investors holding the size factor were hurt with a large negative shock. Being long small firms when there is a liquidity crunch shock is not going to be a good place for investors. Value is also not a good place to be going into a sharp recession. In contrast, quality and momentum were better places to be invested. Firms that were showing downward performance continued with that trend when the COVID-19 pandemic hit global markets. Quality investing served as a good place for safety. The low volatility factor did not offer protection after serving as the popular factor trade for a number of years.
Consistency may not offer solace for investors looking for alternative factor gains in equities. Investors would have found the protection desired by broadening the portfolio choices to other asset classes. Alternative risk premia in commodities, currencies, and rates not only provided diversification but positive returns from the pandemic shock.
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