Why Quant Funds Are Giving Factor Funds a Fright

The video discusses the challenges faced by factor investing, particularly in equity quant funds, which saw significant outflows. It highlights the underperformance of popular factors like momentum and value, and the difficulties in achieving diversification. The impact of changing market regimes on momentum strategies is examined, along with the debate on the long-term viability of factor investing. Concerns about exaggerated expected returns and crowded factors are also addressed.

What was a significant trend observed in equity quant funds last quarter?

• Record high returns

• Increased inflows

• Stable performance

• Biggest outflows in two years

Which two popular factors began underperforming in the second half of last year?

• Dividend and Yield

• Growth and Income

• Momentum and Value

• Quality and Size

What challenge does momentum investing face in a volatile market environment?

• It is unaffected by market volatility

• It outperforms in declining markets

• It struggles with frequent market regime changes

• It benefits from market stability

What is a concern raised about the long-term viability of factor investing?

• Factors are too diversified

• Expected returns may have been exaggerated

• Trading costs are negligible

• Factors are not volatile enough

What is a potential issue with factors that could lead to overcrowding?

• Data mining problems

• Limited market data

• Lack of investor interest

• High trading costs