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Hunting a COVID-19 factor 

Can we identify a COVID-19 factor and quantify companies’ exposure to it? We explored three ways to do so — from very simple to more complex methods.

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The coronavirus market impact spreads globally 

Fear of a coronavirus pandemic and ensuing economic impacts caused sharp drops in global markets after an initially mild response. We look at recent performance from a factor perspective and how quickly factor returns and volatility reverted in past crises.

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Factors separated fact from fiction 

Technological advances have expanded the application of factors. What was the realm of quantitative investors has become more accessible, bringing greater transparency and potential insight into portfolio characteristics and performance drivers.

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Back-to-school (momentum) blues? 

The U.S. price momentum factor, which we highlighted for elevated crowding scores and vulnerability to negative performance at the end of June, suffered sizable drawdowns in the first seven trading days of September.

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Where were the (factor) crowds this summer? 

When factors have historically become crowded, they’ve often experienced significant drawdowns in subsequent months. Which factors were relatively crowded at the end of 2018 — and how did they perform in the first half of 2019?

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More than a feeling: Quantifying consumer sentiment 

Among a flood of alternative data sources, consumer sentiment based on citations online stood out.

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Should we be surprised by earnings surprises? 

Early 2019 earnings season has already contained a number of high-profile surprises, such as Facebooks's, but how predictable are these surprises, and what happens when earnings surprises return to trend?

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Equity markets in November – Do pro-cyclical risks remain? 

In our recent blog, “Equity markets in October – Has the tide turned?” we highlighted a rotation from pro-cyclical to defensive factors and sectors that began in June and accelerated in October. We also found that crowding in the momentum factor in the U.S. remained high, which suggested continued risks to momentum and other pro-cyclical themes.

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Equity markets in October – Has the tide turned? 

October’s market sell-off reflected investors’ concerns with the sustainability of economic growth, the longer-term impact of trade tariffs and rising interest rates. In all, it seemed to be a shift away from pro-cyclical themes. Do risks remain for those areas of the market?

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Is momentum a crowded trade that is starting to unwind? 

The momentum factor has been on a tear the last year and a half. Is momentum a crowded trade that has started to unwind?

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Why is Tesla a short-selling target? 

Elon Musk, founder and CEO of Tesla, suggested in a series of tweets that going private could help Tesla avoid the scrutiny of quarterly reporting and pressure from short selling. Do companies targeted by short sellers share common characteristics? Could factor analysis help investors identify stocks that may become short-selling targets?

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All FAANGs are not created equal 

FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) make up nearly 40% of the NASDAQ 100 index, and smaller but significant weights in many others. Commonly grouped as tech stocks or growth companies, it seems reasonable to assume they share many similar characteristics. However, when examined through the lens of performance-driving factors, their characteristics are far from homogeneous.

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Creating a common language for factor investing 

Investors need a clear and consistent way to talk about factors. For more than 40 years, MSCI has defined how investors use factors to analyze risk and return, from individual stocks to entire portfolios. Factors are important drivers of portfolio performance and are well documented in academic research. They are used to quantify how much risk and return is attributable to different countries, sectors and styles.

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Downside protection? Fear of extreme events rises further 

In May, we wrote that despite the generally low market volatility that has prevailed this year, investors were paying relatively high prices for downside protection as measured by “options skew” – the difference in implied volatility between an out-of-the-money option and an at-the-money option. High skew levels indicate heightened fears of “tail risk” – the chances of unlikely but highly consequential events that could sink share prices. Low market volatility largely continued through the summer, but how has options skew behaved – has it fallen to more “normal” levels?

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Fearing black swans, investors eye options 

It’s been widely reported that equity-market volatility, outside of a mid-May spike, has been oddly low given investor concerns that range from North Korean saber-rattling to the fate of tax cuts proposed by the Trump Administration.

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Why is “fear” missing from the “fear index”? 

Although global uncertainties remain high, the CBOE VIX Index — also known as the “fear index,” recently reached its lowest level since 1993. Some observers have questioned whether VIX remains a reliable indicator.