Value stocks in a Bloomberg index outperformed growth stocks by 1.8 percentage points Monday, poised for the biggest gap since 2016.
However, the concern goes beyond the day-to-day gains and losses among value stocks. Correlations between all investment factors are on the rise, according to Bernstein, increasing systematic risk for active investors. Linkages may only continue to tighten as the earnings season concludes, as investors pay more attention to global threats.
Not only have same-way factor moves ailed quantitative funds -- which rely on the diversification benefit of multiple factors -- but rising correlations also make it difficult for fundamental managers to scrub out unwanted factor risk, according to Fraser Jenkins, who recommends reducing active risk.
“With growth becoming less synchronized, correlation on the rise and value no longer representing cyclicality, this is all evidence that we are heading towards a phase when growth will start to slow,” Fraser Jenkins wrote.
This article was provided by Bloomberg News.