Emerging markets have significantly lagged among global equities in the last several years. However, viewing the asset class through a wider lens, we see a very different picture.
In this paper, we shine light on are three key reasons to consider an allocation to emerging markets small cap to offset unintended risks and improve outcomes in a global portfolio.
A look at what history tells us about future performance after strong momentum quarters.
In this analysis, we explore the benefits of a dedicated allocation to global small cap equities. We discuss what factors have contributed to active managers’ consistent success over time, and conclude with what style exposures have historically worked best in the global small cap universe.
Offset unintended risks and improve outcomes with a dedicated allocation to emerging markets small cap.
The recent volatility in Chinese equity markets has highlighted immanent risks for many emerging markets portfolios. In this paper, we demonstrate how asset allocators can offset unintended risks and improve outcomes with a dedicated allocation to emerging markets small cap.
While expectations for public equities have been slashed everywhere in 2022, expectations for equities outside the US have gone from bad to worse. Low prices and depressed valuations point to opportunity for non-US stocks, as not much is needed to go right for them to surprise to the upside and outperform. While we don’t know when the tide will turn, history shows that when markets make a comeback, small cap should lead the way.
Our research suggests that a dedicated allocation to US micro cap provides a compelling, complementary exposure for allocators that either have a large cap bias or are looking for additional alpha opportunity. In this paper, we show micro cap stocks have offered higher long-term returns among US equities, diversification benefits, and a fertile ground for active managers to consistently outperform.
Momentum strategies inherently involve frequent trading, raising questions about the potential erosion of alpha due to implementation costs. This paper explores the relationship between momentum investing and trading costs by examining the sources and measurement of these costs, reviewing pertinent academic literature, discussing practical implementation solutions, and providing our own evidence supporting the survival of the momentum premium despite trading costs.
Academic research, including our own, has shown that momentum and quality factors have generated positive excess returns above an equity market portfolio. This paper looks at the relationship between long-only momentum and quality portfolios across nine sub-segments of global equity markets. We also share insight on what is an ‘optimal’ mix of momentum, quality, value and growth within each market.
While momentum is widely acknowledged as a robust and persistent driver of excess returns in global equity markets, Japan presents an intriguing case that may diverge from this trend. This analysis contributes to the ongoing debate surrounding momentum in Japan, shedding light on the intricacies of market dynamics and portfolio construction.
Across a diverse set of global equities and multiple market capitalizations, we conducted an analysis of 32 distinct long-only factors, including momentum, value, growth, quality, and the market. These findings collectively underscore the robust and reliable performance of momentum as a factor in global equity markets.
The small cap premium’s significance seems to have diminished over time and the underlying cause remains uncertain. This study looks at incorporating momentum exposure within the small cap universe to potentially offer a more reliable approach to generate alpha in today’s markets and resurrect the fruits of small cap investing.
Since 1992, the Style Box framework has been used for portfolio diversification and to improve investment outcomes. This paper challenges that popular construct, highlighting momentum as a worthy stand-alone alpha source, or a substitute to traditional growth.
This is a follow-on to our earlier paper Momentum Crashes: The Long & the Short of It. In this short piece, we highlight the historical significance of two recent momentum crashes that occurred in November 2022 and January 2023. We also note that coming out of periods like this, historically long-only momentum has done quite well.
There is a common notion that a momentum strategy carries higher risk than that of a value strategy. This analysis puts that idea to the test using nearly 100 years of data and various risk measures. In this paper, we discuss the potential reasons for this misconception and show evidence that momentum has lower realized risk than value over time, while outperforming meaningfully.
This analysis shows the impact to a momentum-based investment strategy from different rebalancing frequencies. Our research suggests that turning the portfolio often is necessary to harvest the momentum premium consistently through time – thus placing turnover and implementation costs as key considerations in any successful momentum strategy.
A consistent pushback against momentum is the strategy’s susceptibility to short, sharp periods of underperformance. In this paper, we analyze some of the worst momentum crashes in history to discover how these periods of underperformance can be nearly fully mitigated.
Our research and that of others finds the momentum premium to be robust, persistent through time and pervasive across asset classes. In this paper, we discuss reasons for the momentum premium, as well as how to use a momentum strategy as part of a diversified portfolio.
Momentum and growth do have positive excess return correlations over time; however, in this paper we describe the ways in which the two styles are inherently different, leading to very different outcomes over time.
Momentum and value tend to be opposites; one outperforming, while the other underperforms. This negative correlation provides strong diversification benefits to investors, along with long-term alpha. While they are much different strategies with different return patterns over the long term, that doesn’t mean that they don’t converge at times.
This monthly analysis offers timely insights into current global equity market dynamics. The report includes high-level performance observations by size category and style, as well as depth on the drivers of performance within the MSCI ACWI Index and MSCI ACWI Small Cap Index.
This monthly analysis offers timely insights into current US equity market dynamics. The report provides high-level performance observations by size category and style, as well as depth on the drivers of performance with regard to various characteristics and factors.
This monthly analysis offers timely insights into current Non-US equity market dynamics. The report provides high-level performance observations by size category, market and style, as well as depth on the drivers of performance within non-US equity markets.
This monthly analysis offers timely insights into current global equity market dynamics. The report includes high-level performance observations by size category and style, as well as depth on the drivers of performance within the MSCI ACWI Index and MSCI ACWI Small Cap Index.
This monthly analysis offers timely insights into current US equity market dynamics. The report provides high-level performance observations by size category and style, as well as depth on the drivers of performance with regard to various characteristics and factors.
This monthly analysis offers timely insights into current Non-US equity market dynamics. The report provides high-level performance observations by size category, market and style, as well as depth on the drivers of performance within non-US equity markets.
This monthly analysis offers timely insights into current global equity market dynamics. The report includes high-level performance observations by size category and style, as well as depth on the drivers of performance within the MSCI ACWI Index and MSCI ACWI Small Cap Index.
This monthly analysis offers timely insights into current US equity market dynamics. The report provides high-level performance observations by size category and style, as well as depth on the drivers of performance with regard to various characteristics and factors.
This monthly analysis offers timely insights into current Non-US equity market dynamics. The report provides high-level performance observations by size category, market and style, as well as depth on the drivers of performance within non-US equity markets.