“If it’s less than 30 years, I wouldn’t look at it for factors,” said Riccardo Rebonato, professor of finance at EDHEC Business School, EDHEC-Risk Institute, and a former global head of rates and FX analytics at Pimco. “Identifying a factor is like detecting the direction of a gentle breeze in the middle of a hurricane. You need a lot of observation to tell.”
Certain factors like momentum and value require lots of portfolio churn, a challenging proposition given the trading costs. Still, there are all manner of ways quants trade the credit cycle. AQR’s Core Plus Bond mutual fund with $108 million holds a mixture of government, corporate and mortgage bonds.
Andrew Dassori, chief investment officer of Wavelength Capital Management LLC, said his firm focuses on “whatever instruments are going to be most efficient.” Its Interest Rate Neutral Fund has a mix of Treasury futures and ETFs. With a 10% return this year, it’s beating 97% of peers.
As for Houweling at Robeco, he still encounters plenty of doubters, but they don’t bother him much.
“Some are outright critical, that this can never work,” he said. “These are people who don’t want to be convinced, so we’ll just talk to somebody else instead.”
Bloomberg News.