Stock picking

In part 1 of our article, we analyzed tendencies and trends among the Top 10 quantitative strategies of 2021. Thanks to Quantpedia Pro’s screener, we published several interesting insights about them.

In part 2 of our article, we got deeper into the first five specific strategies, which are significantly outperforming the rest in 2021. 

Today, without any further thoughts, let’s proceed to the five single best performing strategies of 2021 as of August 2021.

As of the first half of August, the year 2021 seems to be a phenomenal year for equities. World equities have earned more than +16%, and US equities, even more, topping +20% gains. Is there even any better strategy this year than just holding US equities? Well, yes, there are actually several of them. Are they all tied to US equities? Many of them are, but many of them are not. Some of them are not even tied to equities at all.

Note: This blog is Part 1 of a series. Part 2 is available here, and Part 3 is available here.

Summer Olympics are a major event that attracts attention from the moment the host country is announced. However, that’s not shocking. The Olympics require a lot of planning, infrastructure building and investments. Still, countries battle for the opportunity to host these events. Undoubtedly, hosting the Olympics is prestigious, helps tourism, and many even argue that it also helps the domestic economy despite the costs of hosting. Therefore, it is natural to expect that the Tokyo Olympics should impact the domestic stock market.

Special Purpose Acquisition Companies (SPACs) raise capital through IPO under special conditions intending to acquire an existing company (private equity). On the one hand, it looks like an attractive opportunity for investors – SPACs bring a lot of excitement and prospects of large profits since the management can find a valuable opportunity. If no acquisition is made, then investors simply get their money back. For firms that are being acquired, it is a much easier and faster way how to get publicly traded – without investment banks and IPOs. On the other hand, SPACs are very speculative and even frequently overpriced, which attracts many critiques. While SPACs are nothing new, recently they have got quite popular, which raises several questions: are they worth attention or do they bring abnormal profits? A fascinating insight into SPACs provides a novel research paper of Chong et al. (2021). The study explains the fundamental principles of SPACs, but most importantly, it shows us the risks and returns of such investments. Despite the popularity and the seemingly attractive opportunity of SPACs, results show us that the invested capital could be instead used elsewhere. Although the success depends on the sector in which is the SPAC interested or whether the acquisition was successful, overall, it is hard to find abnormal returns in these investments.

ESG scores are the modern trend in the financial markets, and while this sustainable investing has its critics, it seems to become a regular part of the markets. Frequently, and probably rightfully, ESG is criticized for the lack of commonality across various “scorers”, and as a result, there might be a large dispersion among the score of one firm. The reason is that the score usually consists of different metrics and aggregation methodology. Apart from this “long-term” score, investors can easily recognize the “short-term” score, which can be proxied by negative incidents such as pollution, poor social aspects, social or governance scandals and so on. Moreover, these incidents could be more informative about (un)sustainable practice compared to ESG scores. These ESG incidents are studied by the novel research of Simon Glossner (2021). Using incidents news, the author provides interesting results that mainly support proponents of sustainable investing. Poor ESG performance proxied by incidents predicts more incidents in the future, lower profitability which should subsequently spill to negative performance in future. For example, portfolios consisting of negative incidents stocks significantly underperform the market for both US and European stocks. Therefore, this research paper is a compelling addition to the literature that, apart from social aspects, connects ESG also with performance.