Matthias Hanauer
@HanauerMatthias
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Director Quant Equity @Robeco | Bridging Academia and Industry 💡| Exploring Factors, ML, and International Data 🚀
Munich
Joined June 2019
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HONEY, WE SHRUNK THE FACTOR ZOO!
In our brand new paper "Factor Zoo (.zip)", we compress the
#FactorZoo
of >150 factors to just 15. 👉 Many are redundant but just a handful as in common asset pricing models is not enough!
Check out the top 15 in our paper! 👇
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New 150+ (!) page survey on Financial
#MachineLearning
by Bryan Kelly and Dacheng Xiu!
👉
Unfortunately, only limited discussion of international results…
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Has Value still fuel left in the tank? 🚀
Despite the strong comeback over the last two years, we find that valuation differences between value and expensive stocks are still wider than at the peak of the dot-com bubble!
Get the full analysis here 👉
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The classic Fama-French factors failed over the last decade. By contrast, many factors that are not endorsed by the academic community showed positive returns.
New paper by David Blitz 👇
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NEW PAPER: “ Betting Against Quant: Examining the Factor Exposures of Thematic Indices”. 👉
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2020 was been the worst year for the academic value factor (HML). The second worst year (1999) was followed by a very strong comeback of the value factor.
What will be 2021?
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DATA, DATA everywhere | New data library available | 12 factors, 4 global regions, 37 individual countries, dozens of visualizations! 👉
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2020 has been the worst year for the academic value factor (HML). The second worst year (1999) was followed by a very strong comeback of the value factor. What about 2021?
Q1 2021 was the 2nd best quarter in history! How will the story continue? Stay tuned!
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❗️** New article out** ❗️
The Double Discount in Emerging Markets
🌍 EM trading at a 1/3 discount compared to DM
💎 EM value spread still very wide
#EmergingMarkets
#DoubleDiscount
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It has been a long journey with many ups and downs, but I am happy to share that our paper "The idiosyncratic momentum anomaly" (joint work with David Blitz and Milan Vidojevic) was finally published. :) Free download via the link!
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In my latest 'quant chart of the month', we show how the Value factor has had its strongest start in 35 years. Despite this rally, the value remains attractive both in terms of absolute and relative valuations.
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As of the end of June, the MSCI Small Cap Index trades at a valuation discount of more than 20% compared to the standard MSCI World Index. This presents the largest discount observed for at least 20 years.
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Despite the recent rally in cheap stocks, we believe the Value upswing still has a way to go! Check our deep dive into recent developments and why we believe that value is ready for summer.
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I hope that the current situation will be resolved peacefully. However, how did Value for a sample of major historical geopolitical/military events?
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Around the world, the valuation spread between cheap and expensive stocks is at unprecedented levels! The animation below is an update of our recently published paper 'Resurrecting the Value Premium' 👉
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Tired of paying 2 and 20 for PE?
This paper shows that you can replicate private equity returns with value investing, leverage, and creative accounting:
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🚀🚀🚀 Exciting news (again 😎):
Our 📝 "Machine learning and the cross-section of emerging market stock returns" has just been published in the Emerging Markets Review!
@tk260592
Access our article for free (next 50 days) here:
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The value-rates narrative is based on some spurious correlation between 2018-2020. Before and after, there is little relationship between the two.
Data until Sep 2023. Analysis as in
Remember when the geniuses claimed super high value spreads were justified by rock bottom interest rates?
They were always wrong:
But, oddly, now that rates are 300-500 bps higher, they seem to agree with us, “shrugging it off” (the term lazy journalists
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📣Paper "Beyond Fama-French Factors: Alpha from Short-Term Signals" has been published in the FAJ!
w
@paradoxinvestor
Net alpha possible by
🔀applying a combination of short-term signals on
💧 liquid global universe
🚀advanced buy/sell trading rules
👉
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We substantially revised our paper 'Enhanced Momentum Strategies' by adding a cross-country analysis. MOM and cMOM are heavily exposed to market dynamics while dMOM and iMOM are significantly less affected. Revised paper:
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In our new note, we document that single and multi-factor equity portfolios are currently very attractively valued (especially value!) and factor premiums persist across interest rate cycles.
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Does news in shorting activity predict future returns? Yes, it does!
Check out our new paper (with Esad Smajlbegovic and Pavel Lesnevski) for more details. 👇
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Value is not dead! In our new paper, we describe how the value premium can be resurrected. 👉
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Even after a year of excellent value returns, valuation spreads are still wider than during the peak of the dot-com bubble -> value still has legs
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NEW STUDY | What is the best factor model for global markets? Free downloading here 👇
Happy to receive your feedback!
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Why did EM underperform DM over the last decade? 📈 Diverging relative valuations were the main driver. 📈 Over 75% of EM vs DM performance can be explained by changes in the EM/DM value spread.
📈 Currently, EM is trading at a one-third discount compared to DM.
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#ICYMI
: I am thrilled to share that my paper "Surprise in short interest“ has been published in the Journal of Financial Markets!
We demonstrate that not only the LEVEL but also the CHANGE (i.e. surprise) in short interest matters!
#openaccess
👇
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@VogtAlexander_
Thx for sharing! Most of the underperformance be can explained by small cap becoming relatively cheaper. Controlling for these valuation changes, small caps actually showed a good performance (spread between the blue and green lines widens).
As of the end of June, the MSCI Small Cap Index trades at a valuation discount of more than 20% compared to the standard MSCI World Index. This presents the largest discount observed for at least 20 years.
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📣NEW PAPER: The Term Structure of Machine Learning Alpha📣
🧠 Common ML models have high full-sample gross alphas
❗ However, performance net of costs is close to zero after 2004
📈 Training on longer horizons and efficient trading rules yields significant positive net returns
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Value spread with MSCI Value and Growth.
1) For 4 different multiples, I compute the RATIO between G and V
2) Normalize each time series with its median
3) Take the average across the 4 value spreads
👉The spread is extremely wide!!!
@CliffordAsness
@choffstein
@LizAnnSonders
Mind your computations. Assume growth trades at 40 P/E and value at 20 P/E. -> Growth is 2x as expensive as value. Assume all stocks fall by 50% -> PE now 20 vs. 10. G still 2x as expensive as V. It “/“ is NOT “-“
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NEW PAPER with David Blitz, Rob Huisman,
@HonarvarIman
, and
@paradoxinvestor
is out today!
We document that investors can harvest net alpha beyond Fama-French factors by combining short-term signals and applying efficient portfolio construction.
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This is a piece of art! Worth a NFT?
@RyanPKirlin
@nonprophetcap
@HML_Compounder
@Greenbackd
@MebFaber
@NomadicSamuel
@DominantPort
@lady__bost
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In our new paper, we show that machine learning can significantly boost fundamental analysis. ML strategies earn substantially higher alphas than their OLS counterparts (48–66 vs. 11–36 bp per month).
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Mind your computations. Assume growth trades at 40 P/E and value at 20 P/E. -> Growth is 2x as expensive as value. Assume all stocks fall by 50% -> PE now 20 vs. 10. G still 2x as expensive as V. It “/“ is NOT “-“
Rebalancing of S&P 500 Growth and Value Indexes has brought valuation gap in considerably … forward P/E spread between former and latter now hovering near lowest since 2017
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Yesterday afternoon we had the honor and pleasure to have
@CliffordAsness
in our finance research seminar at
@TU_Muenchen
. Cliff gave a great and entertaining presentation on why even with more than 70 years of data, "The Long Run Is Lying to You." Thanks!
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Despite a weak June so far, the value train is still on track for 2021. YTD performance is even better than in 2000 up to now.
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I think we can agree that there is no replication crisis for value spreads! 😄
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I am honored to share that our paper "Does earnings growth drive the quality premium?" has been awarded the ACATIS Value Prize.
Link to the paper:
Practitionar summary:
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Does Impact Investing have Impact?
This study from Jonathan Berk and Jules van Binsbergen suggests that current ESG divesture strategies have had little impact and proposes that investors should become more active owners instead. 👉
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Despite the good performance in 2021, the valuation spread between cheap and expensive stocks is still exceptionally wide!
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Does Size Matter? Check out our brand new paper on the size premium (joint work with David Blitz).
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❗️Small Cap Valuation Update❗️
As of the end of September, the MSCI Small Cap Index still trades at a valuation discount of more than 20% compared to the standard MSCI World Index.
#SmallCaps
#Valuation
As of the end of June, the MSCI Small Cap Index trades at a valuation discount of more than 20% compared to the standard MSCI World Index. This presents the largest discount observed for at least 20 years.
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🎉Very happy to see our paper Beyond Fama-French Factors: Alpha from Short-Term Signals in the latest issue of the Financial Analysts Journal!🎉
Free download (first 50 clicks) via this link:
Paper with
@paradoxinvestor
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@CliffordAsness
YtD, the average value stock outperforms the average expensive stock. However, the average (long-only) value strategy underperforms their cap-weighted benchmark. This seemingly contrasting evidence is mainly explained by a few extremely well performing mega-caps (Magnificent 7)
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Despite missing intangibles and all the other critics, also academic Value (B/M) is back!
#resurrection
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#OpenData
#GlobalFactorPremia
We just updated and extended our set of global factor premia on with end-2021 data. Check how 12 common factors have performed in different global regions (AC, DM, EM, or subregions) or more than 30 individual countries.
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There's always a first time for everything; for me, it was joining a podcast!
Big thank you to
@JJCarbonneau
and
@practicalquant
for inviting me. Topics covered include:
🦓Taming the Factor Zoo
💵Value: Reported Death, Resurrection, and Outlook
This week
@JJCarbonneau
and I talk factor investing with (and host the podcast debut of)
@HanauerMatthias
We cover:
- filtering down the factor zoo
- resurrecting the value premium
- factor timing
- value performance and rates
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2021 has seen the resurrection of the academic value factor (HML) after its reported death. This mirrors the strong comeback after the second-worst year (1999). What will be 2022?
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What drives the quality premium? Our paper (just accepted in the Journal of Banking and Finance) shows that quality measures predict stock returns if and only if they forecast earnings growth. Access the paper free of charge:
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The value/rates narrative: economic causality or just a recent (spurious?) phenomenon? Nice article from
@CliffordAsness
.
The post reminds me also on our note in which we observed a similar pattern.
My latest:
Is Value Just an Interest Rate Bet?
If you want the tl;dr then no it is not. More follows.
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@BaltussenGuido
@LaurensSwinkels
Final words
If you made it this far, thank you! Your time is valuable, and I'm grateful you spent some of it here! Hopefully, these value investing insights hit home!
Looking forward to the next 3 years of value investing!
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The value-rates narrative (correlation) is mainly a 2018-2020 thing. Sometimes value can even outperform when rates fall and vice versa.
Data until March 2023. May 2023 is not even included. Analysis as in
Let’s add “is value just a, or even a significant, interest rate bet” to the long list of things I and others (e.g., ) have utterly failed to convince the echo bubble brains of, so the market does what it wants for a while.
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2021 was an excellent year for value so far! Academic HML had a superb start until May, followed by a negative June and a flattish summer. Question: Will we see a Q4 rally as in 2000 again?
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New paper out with David Blitz and
@paradoxinvestor
! We show that the low-risk anomaly in China is a strong, robust, and distinct phenomenon. Actually, VOL is stronger than all Fama-French factors.
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Thought ETFs are passive? Think again and read this new paper:
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Just saw this new cool paper. Language models beat word-count models (“bag-of-words”) in identifying new information in company reports for predicting stock returns, i.e. studying “lazy prices”.
👉
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Does PE outperform? This paper says NO!
"Valuing Private Equity Investments Strip by Strip"
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❗️Brand new paper from David Blitz, Bart van der Grient, and Iman Honarvar:
Reversing the Trend of Short-Term Reversal
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Three months into 2023, and value spreads around the world remain wide, particularly in emerging markets.”
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I am very much looking forward to the upcoming Finance Research Seminar at
@TU_Muenchen
. Honored that
@CliffordAsness
,
@marcobecht
, Kent Daniel,
@LeippoldMarkus
,
@MSchularick
, and Robert Stambaugh will be our guests (among others). 👉
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High dividend stocks were outperforming low dividend stocks. However, only looking at dividends is only half the truth. You also have to look at share issuance/buybacks.
@paradoxinvestor
@alphaarchitect
@MebFaber
know what I am talking about.
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💥 Busting the Benner Cycle Myth 💥
Seen that 150-yr chart pretending to predict market booms and busts, too? Comments range from mind-blowing to incredibly accurate. It's time for a reality check. My analysis (details below) shows it's not the "Sure thing" it claims to be.
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Happy to share that my paper "The cross-section of emerging market stock returns" (joint work with Jochim Lauterbach) was awarded the ACATIS Value Prize 2020 (1st place). The paper was also published in the Emerging Markets Review.
Robeco’s Matthias Hanauer and fellow researcher, Jochim Lauterbach, win the ACATIS Value Prize 2020 with their paper "The cross-section of emerging market stock returns".
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Just saw this paper that claims that
#ML
can predict
#PrivateEquity
fund performance by reading fundraising prospectuses.
👇
Limited Partners versus Unlimited Machines; Artificial Intelligence and the Performance of Private Equity Funds
👇
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Nice piece by
@CliffordAsness
on how changes in valuation multiples affect realized returns and their opposite effect on expected returns. Perfectly in line with our recent observations 👇
The Long Run Is Lying To You
Many examine long term average returns in order to make allocation decisions. But even over 30-70 years, the expected return to the stock market, and the USA vs. EAFE, is overestimated and the value factor underestimated.
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Exciting news! Our paper on machine learning to boost stock selection in emerging markets has already been downloaded over 1,000 times on
@SSRN
! 🚀💻 Check out the results for yourself!
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Here some papers on ML for international markets:
Developed Markets (Tobek and Hronev):
Emerging Market (Kalsbach and me):
Europe (Drobetz and Otto):
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🚀🚀🚀 3 years ago, Reddit-fueled retail trading sent highly-shorted
#MemeStocks
like $GME and $AMC "to the moon" questioning the predictive power of short-selling data. Fast forward to today, the most shorted stocks have heavily underperformed since then, no
#MOASS
in sight.
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We substantially revised our paper 'Enhanced Momentum Strategies' 👉
Important new finding: the well-known claim that momentum does not work in countries with low individualism does not hold out-of-sample.
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Thrilled to share that our paper Factor models for Chinese A-shares (w
@LaurensSwinkels
) has been published in the International Review of Financial Analysis 🎉
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Despite some differences in defining value and measuring the valuation spread, this figure looks remarkably similar to the one shared by
@CliffordAsness
some time ago. Perhaps, there is indeed some truth to it? 😉
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Great new paper from
@LeippoldMarkus
, Qian Wang, and Wenyu Zhou: Machine learning in the Chinese stock market
The authors show that ML can help to predict stock returns that survive transactions costs and in a long-only context.
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Worried about momentum crashes? In our latest
#QuantChart
we discuss how alternative momentum strategies can mitigate risk without sacrificing long-term returns. Recent drawdowns in Nov '22 and Jan/Feb '23 are prime examples. Check it out below!
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In our latest Quant chart, Jan Sytze Mosselaar and I demonstrate how low-risk strategies are typically useful for investors when they most need protection.
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The fourth is strong with value!
@CliffordAsness
@MebFaber
@alphaarchitect
@paradoxinvestor
@RyanPKirlin
@HML_Compounder
@PythonTrader
Today is
#StarWarsDay
. Fun fact: On May the 4th,
#value
returns are 8x times higher than on other days. The
#fourth
is strong with value.
#MayThe4thBeWithYou
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2022 saw the 2nd best start of the academic value factor (HML) since 1935! This is just after seeing the 'resurrection' in 2021 after its reported 'death' in 2020. This mirrors the strong comeback after the second-worst year (1999) when HML was told dead before.
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New paper by David Blitz: The Quant Cycle
- Traditional business cycle indicators do not capture much of the large cyclical variation in factor returns
- A Quant Cycle directly from factor returns captures does much better
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6. Value and Interest Rates
A popular narrative is that the rise in interest rates caused the value comeback over the last years. While I have already been skeptical in a 2021 article with
@BaltussenGuido
,
@LaurensSwinkels
, and Sebastian Schneider (), one
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Share Buybacks -> strong
Dividends -> strong
Net Payout (Shareholder) Yield firing on both cylinders🚀🚀
(source: )
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Alpha Architect just published a nice summary of my colleague's (
@BaltussenGuido
,
@LaurensSwinkels
, and
@paradoxinvestor
) paper 'Global Factor Premiums' (forthcoming JFE).
The Definitive Study on Long-Term Factor Investing Returns -
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The recent value rally confirms our view that value is currently extremely attractive. But what about other factors? Read more in our 5-year outlook!
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The
#memestock
frenzy shook the market 2 yrs ago (
#GME
#AMC
). Fast forward to today: The most shorted stocks have heavily underperformed since then. Despite some upticks in Nov 2022 and Jan 2023, no
#MOASS
in sight. Time to reconsider on which side you stand?
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@HML_Compounder
@DominantPort
@FactorDork
@Luke_Swanson_
@NomadicSamuel
@nomadicsammy
@RyanPKirlin
@RyanMGavin
@wimms5987
@MarkTMeredith
@game_book_life
Large growth trading below fair value!? I am quite sceptical. These fair value estimates depend a lot on expected long-term growth rates and analysts tend to extrapolate them too much based on past growth.
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Go deep value. Go!
If we all say it together maybe it will happen? 😇
The pitch from 3 angles:
@CliffordAsness
And
@TPhilippeBCM
And
@RyanPKirlin
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Which factors work in India?
We observe astonishing similarities to the UK: standard & idiosyncratic momentum (MOM & iMOM) exhibit again the highest premia. Similar to many other markets, however, iMOM is less risky and therefore shows a much higher t-stat. Size (SMB) works too!
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H1 2022 Update of Global Factor Premia
Russia's invasion of Ukraine, rising inflation, and increasing recession fears led to a turbulent first half of the year. Consequently, equity factors worldwide showed pronounced performance patterns.
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Correct! The value-rates narrative is rather a short story than an ongoing story (see Fig 6 of my latest insight)!
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Nice reminder! I remember the critical comments when showing valuation spreads in 2020. Now most people claim that they saw it coming
Forgot about this one!
A great example of backwards (even over the “long term”) optimization.
Even “since inception” isn’t what it’s cracked up to be.
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Great new paper from Manuel Ammann, Sebastian Fischer, and
@florian_weigert
: Mutual funds with stable factor exposure have higher returns! 👉
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Valuation spreads between value and growth have substantially widened over the last years. In the revised version of our paper () we show that the recent drawdown is fully explained by the spread widening for the US, and to large extent for DM ex-US and EM.
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After the huge MTUM rebalance last week, it seems that (MSCI) value and momentum go less against each other and both outperformed the S&P500 over the last days. Momentum strategies with more frequent rebalancing could already profit in May from value's improved momentum
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