{"id":34702,"date":"2020-02-11T10:52:39","date_gmt":"2020-02-11T15:52:39","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=34702"},"modified":"2022-11-21T09:45:03","modified_gmt":"2022-11-21T14:45:03","slug":"smart-beta-book-feb10-20-recap","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/ibkr-quant-news\/smart-beta-book-feb10-20-recap\/","title":{"rendered":"Smart Beta Book \u2013 Feb 10, 2020 QMIT by QuantZ"},"content":{"rendered":"\n<p style=\"background-color:#f9f7e3\" class=\"has-background\"><em>Part I of Feb 10, 2020 will recap January 2020<\/em>.<br><br><em>Stay tuned for Part II of Feb 10, 2020 commentary, which will focus on The Sector ranks table and  heatmaps with the DTD, MTD, YTD, 5 year, Post-07 &amp; LTD returns for our ESBs.<\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Following the explosive      factor moves in Jan 2020 (which were really a continuation of 2019      thematically), the first week of Feb 2020 was rather different due to a      combination of earnings and the CoronaVirus scare.<\/em><\/li><li><em>Despite the market ending      substantially higher for the week at +3.2% on the SPY, there was a huge      rotation beneath the surface. We witnessed a major Val-Mo rotation on Feb      5th with Value &amp; Reversals up as much as +4% driven by the bounce in      Energy vs PMOM &amp; Risk down ~-2% ($ neutral) as the growthy tech names      sold off. It remains to be seen whether there is a catalyst for a      sustained move as it fizzled out Thursday\/ Friday especially in light of      the payroll number. By the end of the week after the reversal faded we      only saw ~+2% for DV (Deep Value) &amp; Reversals and ~+1% Analyst Ratings      (ART) &amp; CSU with -1.4% for Enhanced Momentum ($ neutral).<\/em><\/li><li><em>Key catalyst for Value      remains the steepness of the curve for financials &amp; cyclicals to      ignite which will depend on overall confidence in economic growth &amp;      sentiment regarding the economy. <\/em><\/li><li><em>We wanted to dive a bit      deeper into our rationale behind a potential Value-Momentum rotation.      Value has performed extraordinarily well vs Momentum over the past 2      decades particularly given the benefit of starting near the beginning of      the NASDAQ crash in 2000. However, the dramatic underperformance over the      past 5 years is similar to that of the late 90s dot com era &amp; it has      substantially narrowed the outperformance gap.<\/em><\/li><\/ul>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"562\" height=\"311\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2020\/02\/qmit-febsmart-book-1.png\" alt=\"\" class=\"wp-image-34719 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2020\/02\/qmit-febsmart-book-1.png 562w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2020\/02\/qmit-febsmart-book-1-300x166.png 300w\" data-sizes=\"(max-width: 562px) 100vw, 562px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 562px; aspect-ratio: 562\/311;\" \/><\/figure>\n\n\n\n<ul class=\"wp-block-list\"><li><em>From the annual returns      chart below we can see that our Momentum composite has held up rather well      post-Global Financial Crisis except for the 2009 inflection point which      did severe damage to the short side of Momentum &amp; the 2016 Citadel      Voyager inspired Momentum crowding unwind. <\/em><\/li><\/ul>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"562\" height=\"291\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2020\/02\/qmit-febsmart-book-2.png\" alt=\"\" class=\"wp-image-34720 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2020\/02\/qmit-febsmart-book-2.png 562w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2020\/02\/qmit-febsmart-book-2-300x155.png 300w\" data-sizes=\"(max-width: 562px) 100vw, 562px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 562px; aspect-ratio: 562\/291;\" \/><\/figure>\n\n\n\n<ul class=\"wp-block-list\"><li><em>The underperformance over      the last 3 years has resulted in Value factor becoming \u201ccheaper\u201d (meaning      the valuation dispersion between its longs vs shorts has become much more      extreme) because many of the growthy shorts continue to get bid up (which      would also suggest that\u2019s where much of the spread reversal may come from      as opposed to the long side). Looking at the z-score of 1-year spread      returns [for Value\u2013 Momentum] at ~-1.5 in the chart below and the 3-year      spread z-score of at <\/em><\/li><li><em>Key catalyst for Value      remains the steepness of the curve for financials &amp; cyclicals to      ignite \u2013 that remains to be seen as the move clearly fizzled out fast.<\/em><\/li><li><em>Stay tuned for more on the      historically extreme valuation dispersion spread we speak of above \u2013 we      will be formalizing our \u201cFactor on Factor\u201d research framework which looks      at the valuation, momentum etc attributes of factors themselves from a      timing standpoint.<\/em><\/li><\/ul>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"562\" height=\"283\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2020\/02\/qmit-febsmart-book-3.png\" alt=\"\" class=\"wp-image-34721 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2020\/02\/qmit-febsmart-book-3.png 562w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2020\/02\/qmit-febsmart-book-3-300x151.png 300w\" data-sizes=\"(max-width: 562px) 100vw, 562px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 562px; aspect-ratio: 562\/283;\" \/><\/figure>\n\n\n\n<p>For 2019 recaps, see <a href=\"\/campus\/ibkr-quant-news\/2019-comp-signal-perform-recap-quantz\/\">2019 Composite Signal Monitor Performance Recap \u2013 QMIT by QuantZ<\/a> and <a href=\"\/campus\/ibkr-quant-news\/2019-factor-recap-qmit-quantz\/\">2019 Factor Recap \u2013 QMIT by QuantZ<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Following the explosive factor moves in Jan 2020 (which were really a continuation of 2019 thematically), the first week of Feb 2020 was rather different due to a combination of earnings and the CoronaVirus scare.<\/p>\n","protected":false},"author":269,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":true,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[339,338,341,352,344],"tags":[851,6185,4923,6039,4922,6110,6111,4581,852,494,5926,5436],"contributors-categories":[13678],"class_list":{"0":"post-34702","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-data-science","7":"category-ibkr-quant-news","8":"category-quant-development","9":"category-quant-north-america","10":"category-quant-regions","11":"tag-algo-trading","12":"tag-composite-signal-monitor-performance","13":"tag-computational-finance","14":"tag-coronavirus","15":"tag-econometrics","16":"tag-enhanced-smart-beta","17":"tag-factor-covariance-matrix","18":"tag-heatmap","19":"tag-machine-learning","20":"tag-quant","21":"tag-quantamental","22":"tag-smart-beta","23":"contributors-categories-qmit-quantz-machine-intelligence-technologies"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- 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earnings and the CoronaVirus scare.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.interactivebrokers.com\/campus\/ibkr-quant-news\/smart-beta-book-feb10-20-recap\/\" \/>\n<meta property=\"og:site_name\" content=\"IBKR Campus US\" \/>\n<meta property=\"article:published_time\" content=\"2020-02-11T15:52:39+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-11-21T14:45:03+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.ibkrcampusdev.wpengine.com\/campus\/wp-content\/uploads\/sites\/2\/2020\/02\/qmit-febsmart-book-1.png\" \/>\n<meta name=\"author\" content=\"Milind Sharma\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Milind Sharma\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" 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Milind has an MSCF and an MS in Applied Math from the pioneering financial engineering program at Carnegie Mellon University where he was also in the Doctoral program in Logic (A.I.). Other education includes Wharton, Vassar and Oxford. He has published extensively (JoIM, Risk Books, Wiley etc.) and is a frequent speaker at conferences. Contact Milind by email at Milind.Sharma@QuantzCap.com. 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