Momentum Wins Big in 2020

Venn has a nice recap of 2020 factor performances...and it's no contest. Momentum smoked all other factors and its own historical averages. Not a surprise when the market falls 34% in 30 days and then roars back 68% in the next 280. There were a couple of hiccups in June and November, but Momentum was up pretty much the whole year. (Click chart to enlarge) 

What didn't work? Value! And really badly...again! Just ask Cliff Asness. But the worst factor performance (relative to its own history) was Low Risk. Low beta stocks dropped 31%. As Venn notes, the factor "relies on trusting your risk model, and knowing which stocks are low or high beta. Severe and sudden regime changes can upend risk models and beta estimates, perhaps leading investors to unwind large positions in stocks that they previously viewed as low risk." 

The below chart from Acadian provides a nice illustration of "beta compression:"

Beta compression hit some big-name quant funds, hard, in 2020. No name bigger than Renaissance Technologies. Oh, its vaunted and closed Medallion fund did just fine, gaining 76% (its best year since 2008's 84%). No, it was Renaissance's other funds open to outside investors (with longer trading horizons) that tanked. REIF was down 22% and RIDA 34%! Both are structurally long the low beta factor...because over time there is a demonstrable premia there. But sometimes s**t happens!