Multi-Asset Style Factors Have Their Shining Moments

Multi-Asset Value Payoff: Is Recent Underperformance Cyclical?

“…It is particularly interesting to notice that value in currencies displays positive correlation to both global equities and the US dollar. This suggests a subtler cycle of performance with a both a moderate cyclical and defensive bias, as suggested by Bellone et al (2019). This indicates that style dynamics at the asset class level are not only influenced by business cycle dynamics, but also by more idiosyncratic sources of risk.…”

“…The literature (Kolanovic and Wei 2013;Ilmanen et al 2019;Bellone et al 2019) has sought to link the value payoff to global inflation and real growth, with mixed results. To explore whether or not the value payoff varies with the global business cycle, we conducted a linear regression analysis of the value payoff in developed currencies, bonds, and country equities on global consensus inflation and real growth expectations.…”

“…The literature (Ilmanen et al 2019;Bellone et al 2019) has sought to link the value payoff to global inflation and real growth. To check this assertion, we measured the net inflation and real growth characteristics directly from the holdings of the value portfolio by borrowing the framework introduced by Zangari (2003), applied to multi-asset carry portfolios by Aiolfi and Tokat-Acikel (2019).…”

“…However, after further robustness checks, they subsequently argue that there is actually not a reliable relationship between value and macroeconomic risk. On the other hand, Bellone et al (2019) studied the performance of multi-asset portfolios during different market regimes and found that a multi-asset value portfolio outperforms during the cyclical recovery of equity markets and in periods of rising interest rates. They also found significant differences in value portfolio behavior across asset classes.…”