Only One Way to Win?

Why have so many quantitative funds performed poorly in recent years? In his January 2021 paper entitled “The Quant Crisis of 2018-2020: Cornered by Big Growth”, David Blitz examines in detail recent (June 2018 through August 2020) performance of stock portfolios constructed from five widely accepted long-short factors:

1. Size – Small Minus Big (SMB) market capitalizations.
2. Value – High Minus Low (HML) book-to-market ratios.
3. Investment – Conservative Minus Aggressive (CMA).
4. Profitability – Robust Minus Weak (RMW).
5. Momentum – Winners Minus Losers (WML).

Using factor returns from the Kenneth French data library and additional firm/stock data for developed and U.S. markets to construct alternative factor performance tests from various start dates through August 2020, he finds that: (more…)