Quants Are Looking At Increasingly Stranger Things For A Trading Edge

Today Bank of America released its annual “Institutional Factor Survey”, i.e., questionnaire targeting market quants (but not only), which seeks to assess which factors and attributes are most important in the current environment to clients in selecting securities. As it introduces the 37 page report, “even if you don’t wear a pocket protector this report is relevant” as the rise in ‘smart beta’ assets at close to a 30% annualized run rate during this bull market – and what feels like a seismic shift in assets from fundamental to systematic strategies – suggest factor investing matters to everyone, not just quants.
She is right: as we predicted all the way back in 2009, in a world controlled by algos and where speed of trading matters more than depth of analysis, the quants have now taken over. This is shown by the next chart which confirms that some time in 2014-2015, fundamental investing became of secondary interest to the investing community a watershed event with huge implications and which has received little attention in the broader press.
As BofA’s Savita Subramaian, who conducted the study notes, the results of our 26th annual client survey show which factors clients are using relative to history, and where we could see the next bubble. “Case in point: we saw a rise in the popularity of beta in our survey beginning in 2007, which presaged the remarkable growth in ‘Low Vol’ ETFs and subsequent bubble-like valuations of low beta stocks.”

This post was published at Zero Hedge on May 12, 2017.