What Happened to the Quants in 2018?
Quantitative investment managers experienced significant and wide-ranging underperformance in 2018. The performance of Alternative Risk Premia (ARP) strategies, which claim to offer broad diversification across distinct economic drivers and to be lowly correlated to equity markets, was particularly poor. Because of their purported market neutrality, ARP strategies frequently reside in the “uncorrelated returns” sleeve of investment portfolios, making their downside co-movement with stocks in 2018 particularly painful for investors. We examine the drivers of ARP performance in 2018 and the lessons learned.