A Strange Year For Quants

May 7th, 2019

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This blog post was originally published on the blog by Jin Choi. The website no longer exists, but Jin has graciously allowed us to re-publish his research for the benefit of future investors forever.

Image Credit:Mattz90/

At the beginning of every month, I brief members on how MoneyGeek's Regular portfolios have performed and comment on the state of the financial markets. In this update, Ill also talk about how some quant strategies performed over the past year.

April Performance of Regular Portfolios

The performance of MoneyGeek's Regular portfolios for the month of April 2019 were as follows:

Last Month

Last 12 Months

Since Apr 2013

















Very Conservative




I've chosen to list below the performance of some of our competitors. For the sake of brevity, I've decided to show only those portfolios that have a similar risk profile to MoneyGeek's Regular Aggressive portfolio.

Last Month

Last 12 Months

Since Apr 2013

RBC Select Aggressive Growth




TD Comfort Aggressive Growth




CIBC Managed Aggressive Growth




Canadian Couch Potato Aggressive




In contrast with our competitors, MoneyGeeks Regular portfolios employ stocks/ETFs that follow the value investing strategy (QVAL, IVAL and BRK-B), and also allocate a larger percentage of the portfolios toward Canadian oil and gas stocks (XEG.TO) and gold (CGL-C.TO). If you would like to take a look at our portfolios, I invite you to sign up for our free membership.

Regular portfolios outperformed our competitors in April. BRK-B was the biggest contributor to our strong performance, having gone up by 8.2% during the month. XEG.TO did fairly well too, going up by 5.3%.

The stock market continues to show no sign of weakness. When the market hit a rough patch at the end of last year, I thought we were going to enter a bear market. A bear market is a period of time during which stock prices trend down. But instead, the stock market recovered strongly, and in the month of April, both the US and Canadian stock markets hit new highs.

Weve now had such a long period of economic growth and rising stock markets that were starting to hear some silly things. For example, one prominent venture capitalist went on record to say that he thought severe recessions wont occur anymore, thanks to central banks. In that interview, I heard echoes of Irving Fishers infamous proclamation that stocks seemed to have reached a permanently high plateau, words he said just days before US stocks crashed in 1929, ushering in the Great Depression. Now, I believe that both the venture capitalist and Irving Fisher are highly intelligent people, but intelligence does not immunize someone from getting fooled by the mood of the times.

Whats interesting is that this current ebullient mood among investors is accompanied by some strange behaviour in the stock market.

I have written before that by some measures, value investing is experiencing the worst decade on record. In order for value investing to generate superior returns, investors collectively have to perform careful analysis on each stock, sell overpriced ones, and buy undervalued ones. The sale of overvalued stock pushes their prices down, while the purchase of undervalued stock pushes their prices up. Instead, investors have kept up purchases of stocks like Canopy Growth which loses money on a relatively small amount of revenue, while dumping stocks like Fiat Chrysler which continues to earn billions each year.

Now, the world went through many periods in the past when value investing underperformed. The dot com bubble of the 1990s was one such period, for example. But whats truly strange about this current period is that alternative strategies dont appear to be working either.

For example, one of the most highly researched investing strategies is the momentum strategy. This strategy consists of buying stocks that have been doing well in the past months, with the expectation that those stocks will continue to do well in the short term. Quantitative investment managers like to pair value investing with momentum strategies, since when one underperforms, the other tends to outperform.

Unfortunately, this hasnt been the case in the past twelve months. The following chart shows the relative performance of the S&P 500 (light blue), the iShares Edge MSCI USA Momentum Factor ETF (dark blue), and the Alpha Architect U.S. Quantitative Momentum ETF (purple).

As you can see, both momentum ETFs underperformed the overall stock market by a few percentage points over the past year.

The same goes for a loosely related strategy called trend following. This strategy calls for investing in stocks when stocks are going up, and selling stocks to hold safe assets (e.g. government bonds) when stocks are going down. Similar to momentum strategies, trend following has been very well researched both in academia and by practitioners.

Unfortunately, as you can see below, this strategy has similarly resulted in a few percentage points of underperformance over the past year, though its proponents could claim a partial victory for having limited losses late last year. Note that the dark blue line shows the performance of the Pacer Trendpilot US Large Cap ETF.

Surprisingly, other unrelated strategies havent performed well either. Below is the performance of the Vanguard U.S. Quality Factor ETF, which invests in high quality companies. As you can see, this strategy also underperformed the S&P 500 by a few percentage points.

Vanguard also has a couple of ETFs that follow lesser known quantitative strategies.The chart below shows the performance of the Vanguard U.S. Minimum Volatility ETF (dark blue), and the Vanguard U.S. Liquidity Factor ETF (purple). Both of them also underperformed.

In summary, virtually every well researched quantitative investment strategy has not panned out in the past 12 months, at least in the US. Even if these strategies only had a 50/50 chance of outperforming the market, the odds that all of these strategies would simultaneously underperform is rather low.

I believe the fact that these strategies are not performing points to just how strange this investment climate is. I fully believe that value investing strategies will experience a resurgence again, and I also believe that many if not all of the quantitative strategies will outperform the stock market average over the long run. But when these strategies will start to work again is anyones guess.

This blog post was originally published on the blog by Jin Choi. The website no longer exists, but Jin has graciously allowed us to re-publish his research for the benefit of future investors forever.