It is no secret that most systematic (quantitative) hedge funds have been doing poorly in 2016. Factor targeting strategies (momentum, value etc.) are all underperforming in most regions and sectors. I was wondering what is going on in the world right now that is causing this. It is possible to come up with a story with hindsight as to what happened in a certain period in history. It is usually hard (or impossible) to verify such a story so I imagine answering this question is even harder. If the answers are bound to be too subjective for this site, I can try to adapt the question.

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    $\begingroup$ One year may be too short a time to draw meaningful conclusions... $\endgroup$
    – Alex C
    Nov 24, 2016 at 20:11

1 Answer 1


In addition to momentum and value strategies you mentioned, some other common factor-based strategies are carry, trend (i.e. time-series momentum).

As a very general (and subjective) answer, I personally think there have been a number of changes in capital markets in the recent couple of years, that adversely affect the returns of these kinds of strategies. Some of them are:

i) The markets have not have very strong trends. Instead there have been large sell-offs followed by strong rebounds as seen in August 2015, Brexit, etc. These have been very challenging for momentum and trend strategies, as they go in with a lot of risk, only to sell it off near the bottom, just as markets are about to rebound.

ii) Markets have been generally more macro driven with increasing correlations within stocks and also between asset classes. In general, little dispersion among asset returns, which means that many long-short strategies are suffering.

iii) Small differences in global interest rates meaning hard time for carry strategies (especially in FX, but also in other asset classes).

Another reason might be increased interest in systematic alternative risk premia strategies, leading to a more competitive market and lower risk premia.

edit: It will definitely be interesting to see if there will be other, more systematic answers to this.


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