Value and Risk to Outperform Momentum and Quality - Nomura

September 18, 2012 2:50 PM EDT
Active investors, especially those focused on bottom-up stock picking came into autumn positioned in favor of defensive factors such as Quality and Momentum, noted an analyst report by Nomura. However, the last eight trading sessions have seen an abrupt about-turn in global factor performance in favor or Value and Risk. Analysts think this is likely to continue, here's why:

"Previous episodes of QE in the US and the UK have led to value outperformance and momentum underperformance for an average period of 120 days," said analyst Inigo Fraser-Jenkins.

"Declines in policy uncertainty in the past have favored value and risk over large caps, momentum and quality in both the US and Europe," added Fraser-Jenkins.

Analysts think momentum is still expensive and has further to fall. The market has rallied since the beginning of June, but the high-beta factors only started to outperform two months later. They still lag behind the market and might be playing catch up in the coming days and weeks.

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