Quant stock trades are breaking away from bonds
When money was cheap in the quantitative-easing era, Big Tech names like Tesla Inc. and Netflix Inc.
reigned supreme with ever-higher valuations. Then last year, cheap-looking equities posted a powerful rebound while expensive peers plunged — moves largely attributed to the fast rise in interest rates.
Yet so far in 2023, popular investing styles targeting both sets of shares have defied their historic relationship with bonds time and time again — raising the question of whether something changed in the underbelly of the stock market.
Even as 10-year Treasury yields surge toward 2007 highs — a shift that should make companies whose earnings are expected far out in the future, or growth stocks, less appealing — the tech-stuffed Nasdaq 100 has returned more than double than the S&P 500 this year.
Gains from value investing have disappointed compared to what might be expected. The correlation between each investing style and how bonds move on any given day has slumped.
The Nasdaq 100 is outperforming so far this week with speculative corners of the market — including a basket of expensive software shares — scoring gains, all while 10-year yields climb past 4.3%.
«Value and growth have become substantially less sensitive on the shorter-run, a trend I believe will remain,» said Guido Baltussen, head of factor investing at Robeco.
«The high sensitivity of value and growth was more specific to a zero-ish yield environment — temporary and not structural.»
All this is a big deal given the trillions of dollars invested in quant strategies that slice and dice equities by characteristics like their valuation multiples. And it's an increasingly pressing issue as bond yields climb near a 16-year high on expectations that the Federal
