The Quant Crisis of 2018-2020: Cornered by Big Growth

Journal of Portfolio Management, Forthcoming

26 Pages Posted: 18 Feb 2021

See all articles by David Blitz

David Blitz

Robeco Quantitative Investments

Date Written: January 27, 2021

Abstract

This paper examines the performance of equity factor portfolios during the Quant Crisis of 2018-2020. We find that there was basically only one way to outperform during this period, namely by investing in the largest and most expensive growth stocks. Other factors were only effective to the extent that they provided implicit exposure to the same large growth stocks. Smaller stock portfolios underperformed across the board. Thus, there were numerous ways to fail during the 2018-2020 period, but essentially only one way to succeed. Comparing the Quant Crisis with previous major drawdowns of the value factor we find that these other periods are better characterized as momentum factor rallies with collateral damage for the value factor. Moreover, smaller stocks typically still offered possibilities for outperformance. We conclude that the 2018-2020 Quant Crisis posed an exceptional challenge to quantitative managers due to a rare combination of circumstances.

Keywords: quant crisis, value premium, factor investing, factor premia, smart beta

JEL Classification: G11, G12, G14

Suggested Citation

Blitz, David, The Quant Crisis of 2018-2020: Cornered by Big Growth (January 27, 2021). Journal of Portfolio Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3774164

David Blitz (Contact Author)

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

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