Van John Authers, Bloomberg een zeer interessant maar wel redelijk "technisch" artikel over de neergang van value stocks in het laatste decennium, dankzij momentum. Interessant voor beleggers in bv. URW of banken. Kort samengevat: lange neergang en recente opleving zijn gevolg van rente yieldcurve waarop hedge funds etc. hun algo's loslaten. Verdere stijging of neergang hangt af van die yieldcurve die weer afhankelijk is van externe factoren.
P=MV
Isaac Newton was not a great investor. He took a terrible loss in the South Sea Bubble. But his laws of motion still seem to apply to markets. He held that every object in a state of uniform motion would remain in that motion (in other words, it has momentum), unless an external force acts on it.
All year long, indeed all decade long, the force of momentum has allowed winning stocks to keep winning and losing stocks to keep losing. The losers are mostly value stocks, which are cheap compared to their fundamentals, and which should therefore be expected to perform well. This momentum has exhibited what Newton called inertia. In the last few days, however, momentum has met an external force, in the form of a sharp turn in the bond market. That has shattered assumptions.
Now let me restate that in the language of investment quants. The last decade has seen proliferating attempts to understand markets in terms of factors – underlying trends that help to drive returns. They have been likened to nutrients within food. For many, a security will now be viewed as a combination of value, momentum, quality and so on. This has given rise to the concept of “Smart Beta” – screened investing that keeps costs low while aiming to exploit one factor or another. Exchange-trade funds tracking Value, Growth, Momentum, Quality and so on have been all the rage.
Momentum – the tendency for winners to keep winning and losers to keep losing – has been the most successful factor for the last decade, but it is subject to sudden reversals. And it has just had one. Even as stock markets as a whole have been quiet, we have just witnessed the biggest momentum crash since the bull market began in 2009.
This performance is even more dramatic if we look at factors on a long-short basis – how the best quintile of stocks according to a factor have performed compared to the worst. This also accurately reflects the way that many hedge funds and quantitative groups attempt to exploit factors. And over the last week, the Bloomberg Factors To Watch function shows extraordinary strong performance by value, and a crash for momentum.
The bond market in particular seems to be driving everything. If we look at the yield curve (which for now I will define as the spread of the 10-year Treasury yield over the three-month yield) its steady flattening and inversion this year has been almost perfectly in line with the under-performance of value. The value rally and momentum crash came just as the yield curve steepened.
Joseph Mezrich, quant strategist at Nomura Instinet, presciently pointed out last month that momentum was enjoying one of its best performances on record at both the “long” end (winners winning) and the “short” end (losers losing). This looked overdone and in need of correction.
This is not a new development. Since July 2009, when the current bull market began to take shape, this chart by Mezrich shows that the movement of the yield curve has had a big impact on the performance of the five equity factors identified in pioneering work by the economists Eugene Fama and Kenneth French. A flattening yield curve aids Momentum and Profitability (or Quality) while steepening aids small companies, and Value.
Of course, for much of the last decade, we have lived with an environment of minimal inflation, QE bond purchases, and a flattening yield curve. Therefore, value has done terribly. Meanwhile, the consistent macro backdrop has helped ensure that the same stocks sustain their momentum and keep trundling forward.
Why has it been this way? It is popular to point to the banks, which certainly contribute to the phenomenon. In the fallout from the crisis, banks became very cheap by conventional metrics, and so tend to appear in value indexes. The yield curve is vital to banks’ profitability, as they make their money from the difference between low rates on deposits and higher rates on loans. A flat or inverted yield curve naturally is bad for them.