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Best Factor Investing Paper 2020

QMA wins Best Factor Investing Paper 2020

2020 has, until very recently, seen a continuation of the underperformance of the Value factor, which has piled additional angst onto its proponents as they continue to wait for a reappraisal of 'cheap' stocks. QMA's winning paper may offer a glimmer of hope, as with a new valuation-based analysis framework, they argue that a downward readjustment in the price of Growth stocks is a distinct possibility.

best factor investing paper


WINNING PAPER: QMA


Fasten Your Value Belt: Growth could take you for a wild ride! (QMA, 2020)

This winning paper from QMA presents a new framework in which the authors relate valuation multiples to fundamentals. Using this framework and a valuation measure, they explore how changes in fundamental analysis and assumptions affect pricing across global equity markets. QMA finds that growth companies are much more sensitive to changes in certain fundamental valuation measures than value companies. Finally, they argue that a downward repricing of Growth stocks is probable, which is likely to spur a rotation back to Value as the natural outcome.


HIGHLY COMMENDED PAPERS


Inverting Factor Strategies: No more ‘monkey business’ (FTSE Russell, 2020)

This paper from FTSE Russell outlines how to construct factor strategies using specific and controlled factor exposures. It illustrates why stock weightings may not be a great idea and suggests why one might want to consider using factor tilts for portfolios. The paper also shows how using factor inversion in a controlled manner in one's portfolio construction process may generate excess returns.

Global Factor Investing Study (Invesco, 2020)

For compliance reasons, this paper is only accessible in certain geographies

This fifth Annual Global Factor Investing Study from Invesco reflects the views of 238 investors managing more than $25tn of assets. Investment intentions on topics relating to factor investing are explored including the use of passive investments to implement factor strategies, approaches to the introduction of ESG in factor models, and the use of factors in fixed income investing.

The Math of Value and Growth (Morgan Stanley Investment Management, 2020)

In this paper, Morgan Stanley IM’s Michael Mauboussin argues against the use of multiples as valuation techniques for companies. Using valuation multiples obscures the real drivers behind a company's value and may lead to confusion of how revisions to expectations might ultimately affect multiples.

A Risk-Based Approach to Harnessing Alternative Sources of Income (Nuveen, 2020)

Nuveen's paper focuses on the income-generating potential of alternative assets and the risk factors that drive returns in alternative assets. A suitable strategy needs to be planned, as some of the diversification benefits that alternative assets provide may be negated. Risk analysis is undertaken across several income-generating asset classes, and a framework for risk-based portfolio construction is also provided.

Redefining 'Value' for a Modern Economy (Wellington Management, Sep 2020)

Wellington Management's paper draws upon their fundamental factor framework to help assess the structural challenges to value. They note how some managers are now adapting to what they perceive to be a 'new normal' investing environment. Wellington proposes an alternative, broader definition of value; one which incorporates a discounted cash flow-based metric that offers a more refined definition of what cheap currently means.

Value in Recessions and Recoveries (Research Affiliates, 2020)

This paper by Research Affiliates argues for a mean reversion by value and growth stocks, given the levels of dispersion that existed for much of 2020. Referencing past recessions to help in determining potential outcomes, the authors suggest that regardless of the initial spur, when economic uncertainty is resolved, several styles of investing including value, small cap and quality have all performed well.

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ABOUT THE SAVVY INVESTOR AWARDS

The Savvy Investor Awards celebrate the best content from across the global institutional investment industry. We present awards across 14 different categories including the best overall paper.

Every year our Content Team handpicks and uploads over 10,000 articles and papers to the Savvy Investor platform. This library, alongside engagement data from 50,000+ members, means our judges are well-placed to identify and assess the award-worthy papers of 2020. The Awards are judged on many elements including the depth, quality, readability, and of course, appeal and relevance to our institutional investor audience. In a world saturated with content, and where it’s difficult to cut through the noise, it is a great pleasure to highlight quality, cutting edge, and deeply engaging thought leadership for the investment community.

As the leading content hub for institutional investors, the Savvy Investor Awards were designed to help to affirm or establish authors and firms as true thought leaders within the industry.


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