We analyze how dramatic shifts in the risk characteristics of stocks during the coronavirus pandemic impacted the sector composition of Venn’s Low Risk equity style factor.
Factor analysis can help investors confirm that a fund’s underlying risk exposures align with its stated style or approach. We did this exercise on a large scale, analyzing funds within four Morningstar mutual fund categories. We found that a number of them appeared to have unexpected factor exposures on Venn relative to their category.
Momentum and Trend Following are similar in that they both intend to capture momentum, or the tendency for an asset to persist in its relative (or absolute) performance. In what ways do these factors differ, and why does it matter?
Mike Nigro, the Head of Client Solutions Research at Two Sigma, takes us through a bacon cook-off adventure to illustrate the importance of evaluating investment performance in excess of well-known factors. Make sure you have some bacon around because you’ll be craving it when you finish reading the article.
In investing, and in life, you do not always get compensated for taking risk. Therefore, it is important to not only understand the risks in your portfolio, but also to determine which of those risks you are getting paid to take and which you are taking without any compensation.