Bearish trends or deep corrections in international equity markets starting in 2022 and rising interest rates worldwide brought investors’ attention back to not only once-proclaimed dead factor investing. From long-run and short run, during different market cycles, different factors behave differently. What’s fortunate is that it is pretty predictable to some extent. Andrew Ang, Head of Factor Investing Strategies at BlackRock, in his Trends and Cycles of Style Factors in the 20th and 21st Centuries (2022), used Hodrick-Prescott (HP) filter and spectral analysis to investigate different models to draw some general conclusions on most-widely used factors. We will take a look at a few of quite the most interesting ones of them.

At the moment, there is a lot of attention surrounding overnight anomalies in various types of financial markets. While such effects have been well documented in research, especially in US equities and derivatives, there are other asset classes that are not as well addressed. A recent (2022) paper from Jiang, Luo, and Ye contributed appealing evidence in favor of validating these phenomena in the Chinese market. We highlight the finding that the market MKT factor beta premium is earned exclusively overnight and tend to reverse intraday (and in smaller potency also value HML and profitability RMW), which is the same finding as for the US equities. In contrast, the size SMB factor exhibit significantly opposite pattern: positive intraday premium and negative overnight premium (and the same for investment CMA factor).

Choosing the correct portfolio-construction techniques is very important. The new paper that is written by Amar Soebhag, Bart van Vliet, and Patrick Verwijmeren explores the various ways in which different design choices in portfolio construction can, either intentionally or unintentionally, influence and distort the statistical results of a market factor’s research. Their takeaway is that seemingly small differences in design can significantly impact the resultant portfolio’s performance.

We focused the first part of this article more on tendencies and trends among these US Equity Value strategies. Today we will talk solely about specific top-performing equity value strategies. More specifically, about numbers #7 to #1 from Quantpedia’s ranking. We will also take a look at combining all the value strategies together into a diversified portfolio of value strategies.

Equity Value strategies have suffered hardly during years 2018, 2019 and also 2020. Due to the poor performance of Value during this period, many investors have abandoned the strategy, often expressing view that “Value strategy is not working anymore”. Nevertheless, equity Value strategies have managed a strong comeback recently, turning attention of investors and traders back to them. In our blog today, we will take a close look at many different equity Value strategies, their performance and how they behave.