Small Cap stocks significantly underperformed Large Cap stocks since late March.
Factor performance over the first three weeks of July was very different than the last week, which produced a challenging month-end for quantitative investors.
Although Valuations are a headwind for the asset class, at the stock level our disciplined multi-factor model indicates best opportunities are Small/Mid Caps, and Hotel & Resort-oriented names.
But Momentum turnover of constituents has altered its characteristics – names are now slightly more defensive, cheaper, and larger.
We look at Short Interest Ratios within the S&P 1500 sectors for clues on future market prospects. The Materials sector is one where it has paid to monitor what short sellers are doing (or not doing).
While Momentum continued to struggle and Value surged, the Size factor played a much larger role as Small Caps were hit hard in April.
Momentum suffered across almost every sector, but it was particularly bad for Health Care and Info Tech. Value factors finally rebounded after losing over the past year.
Momentum has easily been the best quantitative factor over the last year. The only other factor with notable positive performance is Sentiment. Can this continue?
2013 ended up being a good year for quantitative strategies, particularly those that focus on using Momentum
The decrease in correlations has been helpful for investors, but the lack of volatility in the measure has arguably been more important.