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Factor and Style Investing Research 2020: Status Quo or Volte Face?

Battle for Supremacy: Will Value, Quality or another factor triumph in 2020?

Despite a rally in the final quarter of 2019, Value stocks look as cheap as they have done for 20 years. With opinions differing about global economic prospects, will mean reversion occur, or will the status quo persist where Quality and Momentum factors continue to deliver superior returns?

In this collection of papers, institutional investors take opposing views on which factor or style of investing will provide best returns in 2020. Some favour a tilt towards out of favour Value, while others argue that with economic conditions remaining uncertain and geopolitical risks to consider, performance may persist from the tried and trusted Quality stocks.

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A Case for Growth Stocks (Baillie Gifford, 2019)

David Bujnowski of Baille Gifford outlines why he believes that Growth investing is likely to remain in vogue, despite many views to the contrary, which suggest that a resurgence in Value is long overdue.

Markets celebrating, but factor investors not so much (Qontigo, Jan 2020)

In this review of 2019, Qontigo notes that while equity benchmarks around the world rose to record levels, volatility plummeted. They note the variations in returns for style factors, with previously out of favour styles showing a resurgence late in the year as volatility dipped. Value posted its first positive quarter in Q4 2019 for nine quarters.

What explains the recent poor performance of factor strategies? (Scientific Beta, 2019)

Scientific Beta observes that recent factor underperformance is down more to the implementation choices of factor exposure rather than to the factors themselves.

What is Quality? (Financial Analysts Journal, 2019)

In this Award-Winning paper from CFA Institute, they note that although investors are seeking 'Quality' attributes in their investments, there is a lack of a commonly accepted definition. They observe that over time, Profitability factor and investment-related characteristics tend to capture most of the quality return premium.

2019 Factor recap: Quality bias defies Q4 risk rally (FTSE Russell blog)

FTSE Russell notes that despite a stronger Q4 2019 for riskier factors like Value and Size, the Quality bias held firm throughout the year, helped by good returns from stocks with low leverage. Their analysis indicates that shifts in US Treasury prices play an important role in driving factor returns.

Video: Budgeting for Risk with Factors (S&P Dow Jones Indices, 2019)

S&P DJI’s Travis Robinson sits down with TD Private Wealth Advisors Andrew Neatt and John Naas to discuss factors as risk mitigators.

Value, Momentum and Mean Reversion in Factor Returns (MFS IM, 2020)

MFS Investment Management suggests that based on historical evidence, the recent wide dispersion in individual factor returns is likely to undergo some mean reversion.

Time for a flight to cyclical value in European equity (Amundi AM, Jan 2020)

For compliance reasons, this paper is NOT accessible in the United States

Strategists from Amundi AM argue that value offers better opportunities than growth as implied expectations are lower and a value dislocation could reverse amid a cyclical rebound.

It’s Time for a Venial Value-Timing Sin (AQR Capital Management, 2019)

AQR Capital Management investigates the underperformance of Value, and notes that it looks especially cheap when compared with historical ranges. In their view, this suggests that an increased weighting might be merited.

Harnessing the long-term potential of dividend growth (FTSE Russell, 2019)

FTSE Russell's paper explores the key characteristics and returns patterns that have differentiated dividend growth strategies over time. They note the performance of dividend-paying US small caps throughout significant market events and identify how dividend growth can affect wealth creation.

Video: Finding valuable opportunities in U.S. value equities (AB, Jan 2020)

For compliance reasons, this paper is only accessible in North America and South America

In this video from AB, they note that the spread between value and growth stocks is as wide as it has been in 20 years, which potentially offers a great opportunity. However, they also note that the key reason for this dispersion is that in times of economic uncertainty and with risks to value stocks from disruptors, investors are prepared to pay a premium for predictable, stable, profitable businesses. Value stocks may be attractive if a 'catalyst for change' can be identified.

Factors in Focus: Will 2020 vision sharpen exposures? (MSCI blog, Jan 2020)

MSCI look back at the factors that worked in 2019 and identify from the past 20 years, those top performing factors over a number of major macro regimes.

Factor behavior through the cycle: Lessons from the Russell 1000 Index (FTSE Russell, 2019)

FTSE Russell firstly investigates how factors perform over full economic cycles, then gets more granular, identifying how they perform at precise points in the economic cycle.

Short positions do not add value to factor investing strategies (Robeco, 2019)

Robeco notes that the commonly held belief that to harvest most of any factor returns, one needs to employ both long and short positions. They argue that this may not be the case, with short positions failing to add much, if any, value.

Factor Investing in the China A-Share Market (CAIA, 2019)

The authors of this paper seek to identify a factor-based, risk-adjusted, alpha-generating investing strategy that quantitative investors could implement in the China A-Share market.