2020 Holiday Wrappings

We finally arrive at the 48th and penultimate issue of Factor Spotlight for what has been quite a surreal and calamitous 2020.

All of us at Omega Point would like to wish you and your loved ones a very Happy Holiday season and a peaceful and prosperous New Year.

During this season, we take time to reflect upon some of the good things from the past year.

We are thankful for the continued health and safety of our employees, customers, and partners.

We are very fortunate to have gained the trust from our customers who work with us every day to solve their investment problems.

We are excited to have formed new partnerships to enable our customers access to unique datasets, complementary investment solutions, and trading/execution opportunities.

For this special year-end edition, we count down the 10 most popular Factor Spotlights of 2020 and wrap up with our US and Global weekly factor summaries.

We have lots of new content planned for next year, see you in 2021!

Regards,
Omer

THE 10 MOST POPULAR FACTOR SPOTLIGHTS OF 2020

10 - HOW HAS SOCIALLY RESPONSIBLE INVESTING PERFORMED IN 2020? (JUN 28)

We compared the performance of top and bottom-tier socially focused portfolios vs. the broader market.

‍9 - CAPTURING A KODAK MOMENT: MAXIMIZING THE ALPHA IN YOUR IDEAS (AUG 9)

This issue Introduced SmartTrades, a new Omega Point tool that allows users to create hedge baskets to offset factor risk exposures.

‍8 - AVOIDING THE ELECTION BETA WAVE (NOV 8)‍

We assessed the performance of a beta-targeting election basket constructed in Mid-October.

7 - IS RETAIL INVESTOR SENTIMENT LEADING TO THE COLLAPSE OF OUR SHORT IDEAS? (JUL 26)

We continued our investigation of the retail investor sentiment signal from Robintrack.net and examined its relationship to the short interest factor.

6 - HEDGE FUND CROWDING - Q1 2020 UPDATE (JAN 19)

Prior to the global spread of the pandemic most eyes in the US were focused on earnings season where we examined hedge fund crowding across a few key industries.

‍5 - INOCULATING AGAINST RUNAWAY BETA (MAR 15)

Runaway Beta hurts investors as the market both falls and rises, in this issue we took a look at this phenomenon and how investors can immunize their portfolios against it.

4 - A TOUR DE BETA ACROSS SECTOR SPDRS (NOV 22)

Leveraging our platform release of predicted and historical beta, we examined the beta trends across the top 10 sector SPDRs.

‍3 - FLASH UPDATE: CORONAVIRUS AND ITS IMPACT ON GEOPOLITICAL RISK (MAR 1)

In this issue we examined how Wolfe Research’s Geopolitical Risk Factor had been trending during the early stages of the coronavirus outbreak.

‍2 - BETA AND VOLATILITY: A WOLF IN GROWTH AND VALUE SHEEP’S CLOTHING (DEC 6)

We investigated a potential growth vs. value rotation with the help of J.P. Morgan’s iDex U.S Growth and iDex U.S. Value indices.

‍1 - THE FACTORS LEADING TO LAST WEEK'S MOMENTUM SHOCK (NOV 15)

We conducted a deep dive into the forces that drove momentum to experience a 19-standard deviation move on November 9.

US & Global Market Summary

US Market: 12/14/20 - 12/18/20‍

• The markets continued to climb higher as we head towards 2021, with all three major indices up over the course of the week (led by the Nasdaq at +3.1%).
• On Thursday, we learned that the number of first-time jobless claims unexpectedly rose last week to 885k, vs. consensus estimates of 818k. This was the highest level since early September and highlighted the ongoing toll of COVID rates on the economic recovery.
• While this negative economic data ironically appeared to encourage investors that congress will pass a stimulus bill sooner than later, negotiations stalled out again on Friday as Trump signed a two-day funding bill.
• The vaccine rollout continued, as the FDA voted on Thursday that Moderna’s vaccine be authorized for emergency use.
• The Fed held its final meeting of 2020, keeping rates near zero and reiterating the uncertainty of the US’ economic outlook and pledging to continue asset purchases at the current rate of $120B a month.

Normalized Factor Returns: Axioma US Equity Risk Model (AXUS4-MH)

• Momentum was again the biggest winner as it shed its Extremely Oversold designation as it reverted +0.57 SD towards the mean. This factor was -2.48 SD below the mean on 12/7 after crashing in early November.
• Growth continued to recover from a recent trough of -1.28 SD below the mean on 11/25, now approaching the mean.
• Size moved lower as it fell by -0.23 standard deviations and headed towards Oversold space.
• Market Sensitivity declined enough to lose its Overbought label, now sitting at +0.9 SD above the mean.
• Volatility reversed course after climbing higher over the past few weeks, falling back towards the mean after peaking at +1.62 SD above the mean on 12/10.
• Value declined by nearly half a standard deviation, leaving Overbought space and now sitting at +0.7 SD above the mean.
• US Total Risk (using the Russell 3000 as proxy) declined by 30bps.

‍Normalized Factor Returns: Axioma Worldwide Equity Risk Model (AXWW4-MH)

• Growth enjoyed more positive movement, up +0.63 standard deviations as it left Oversold territory. This factor bottomed at -2.02 SD below the mean on 11/27.
• Momentum continued to recover from a recent trough of -2.69 SD below the mean on 11/25 as it exited Extremely Oversold space.
• Value peaked at +1.8 SD above the mean on 12/11 and started to move lower, still Overbought at +1.58 SD above the mean.
• Market Sensitivity declined enough to exit Overbought space, and is now +0.86 SD above the mean.
• Earnings Yield entered Oversold territory as it fell -0.31 standard deviations.
• After peaking at +1.75 SD above the mean on 12/7, Volatility has started to revert towards the mean - remaining an Overbought factor at +1.23 SD above the mean.
• Size was the week’s biggest global loser, falling by over half a standard deviation and leaving Overbought space.
• Global Risk (using the ACWI as proxy) decreased by 21bps.