- 30 DecVector 2020 Annual Review
- 20 NovFactor momentum
- 20 OctHow will the US elections influence your portfolio?
- 25 SepAre better times for quant investing on the horizon?
- 26 AugFama/French going through its biggest drawdown since 1963
- 17 JulVector 2020 Semi-Annual Review
- 25 JunA Look At Post-Corona Market Valuations
- 25 MayUnprecedented times call for unprecedented measures...
- 23 AprVector's outlook on the Corona Crisis
- 13 MarMarket correction: sense or sentiment?
- 17 FebThe market and sector concentration
- 14 JanNotice to shareholders
- 31 DecVector 2019 Annual Review
- 17 DecFama/French going through its second biggest drawdown since 1963
- 15 NovThe Alpha Lifecycle
- 16 OctVector 2019 Q3 Review
- 10 SepA new prospectus
- 14 AugMarket Review: July
- 10 JulVector 2019 Semi-annual Review
- 14 JunAre factor premia disappearing?
- 21 MayHow persistent is regional outperformance?
- 12 AprMarket recovery: sense or sentiment?
- 12 MarMarkets solidify recovery
- 12 FebStock Markets Rebound
- 31 DecVector 2018 Annual Review
- 14 Dec2019 (outrageous) predictions!
- 20 AugTemperatures and stock markets heat up
- 18 JulVector 2018 Semi-annual Review
- 14 JunDo exporters suffer during trade wars?
- 15 MayStrong earnings put markets on the road to recovery
- 17 AprQ1 Overview
- 13 MarStock Markets: Episode VI: The return of volatility
- 02 MarVector wins Morningstar Germany and Belgium Awards!
- 22 FebVector Flexible wins De Tijd/L'Echo Awards for the third year in a row!
- 16 FebNavigator wins Morningstar France Award!
Are better times for quant investing on the horizon?
25 Sep 2020
August was kind of a mixed bag on the covid front: while we saw the number of new cases continue to decline in the United States, some European countries - like Spain and France – were showing clear signs of a second wave of infections. Even though the divergence in regional performance reflected this news (with the US outperforming Europe by 3.3%) a better than expected earnings season caused stock markets to rise across the board. Around the turn of the month the MSCI All Countries increased by about 5%, with market returns being rather concentrated in technology and retailers once again.
With the year-to-date return differential between the best and worst performing sector (high tech vs banks) now standing north of 40% and with just 3 out of 17 sectors - as classified by Thomson Reuters - posting year-to-date gains as opposed to 3 posting double digit losses, it is clear that selecting the ‘right’ industry mix was a pivotal investment decision in 2020.
Clearly, getting caught at the wrong side of this pendulum is quite detrimental to one’s performance and, sadly, we’ve tended to select cheaper rather than more expensive sectors this year - a losing strategy in 2020. In an equally weighted setting, the 9 sectors we’ve had most conviction in, lost to the 8 sectors we had the least conviction in by about 10% (per 24/09/2020). Selecting the right stocks within industries can be a powerful tool, but can only get you so far when facing such strong industry headwinds.
To make things worse, the performance of technology and retailers tended to be driven by the biggest companies in the scene, with the FANGMAN (*) posting gains (+44.5% year-to-date) that dwarf the performance of the market and even the sectors they comprise. An equally weighted approach, like we use within Vector, is by definition fated to miss out on investing big in these giant companies: Apple may be 4.26% of the value weighted index, but even if we pick the stock it can only get a 1.25% position in our equally weighted set-up that spreads the assets between our 80 portfolio constituents. Quite painful, when this position goes to outperform the benchmark by more than 60%, as underweighting Apple alone then equates to a negative alpha of about 2%. August was another great month for the FANGMAN, and a not a great one for Vector.
But fortunes can change quickly… In September, when most Robinhood investors had to go back to school, markets gradually started to come back to their senses and questioned the valuation of these stocks that seemed to have only gone up as the world burned around them. And while (per 24/09) the FANGMAN’s outperformance of the previous month had completely evaporated, for Vector Navigator the exact opposite happened. This goes to show that – if you believe that these stocks may not be able to continue their astronomical gains – Vector Navigator isn’t a bad place to be invested in.
Werner, Thierry & Nils
(*): Facebook, Amazon, Netflix, Google, Microsoft, Apple, Nvidia