Articles by Scott Opsal Chief Investment Officer

Last year we published a report titled Price to Book: The King is Dead (available on the Leuthold Research website) with the objective to better understand the decade-long struggle of the value style. Our findings showed that indexes based on the Price to Book ratio have indeed lagged since 2007 but that other measures of value performed significantly better until just recently.

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Our recent commentary “1” For The Record Books noted that just one of seven S&P smart beta factors was able to outperform the S&P 500 last year, even though each style basket limits its holdings to constituents of the parent index.

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The decade of the teens has given way to the decade of the twenties and “year in review” retrospectives are in the books, but as the calendar’s last digit rolls from 9 to 0 we consider one more anniversary worth remembering.

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Dark energy makes up 68% of the universe, yet astrophysicists are having a devil of a time explaining what it is, why it is, or how it works. Quant investors are facing their own dark-energy mystery in understanding style returns of 2019.

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December’s Of Special Interest provided a recap of our Asset Allocation team’s view of small cap equities, suggesting that small caps had underperformed and reached a valuation discount that made them an interesting contrarian value proposition. Several clients responded with follow-up questions, wondering if the discount valuation of small caps was offset by their typically weaker business models.

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In response to client queries, we extended our research of small cap equities from last month. One angle we pursued was the relationship between small caps, quality, and business risk. The full report will be released mid-month.

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This “decade in review” edition examines the performance of sectors and industries, looking at the best and worst groups to reveal the stories they have to tell.

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Small Caps are showing signs of life and the decision to overweight small caps is starting to seem relevant – and perhaps nicely profitable - again.

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Leuthold’s research team has recently flagged a number of items that suggest it may be time to consider small cap stocks. This asset class has been showing signs of life and the decision to overweight small caps is starting to seem relevant – and perhaps nicely profitable - again.

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Construction Materials moved to an Attractive rating, fueled by growth and price momentum. Surprisingly, digging into the numbers revealed it to have lower beta dynamics. Based on this, we examined the cyclical nature of the group to better understand the impact it may have on overall portfolio cyclicality.

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The June 2016 Brexit referendum kicked off a tortured process for the United Kingdom to leave the European Union. However, the wheels of international politics turn slowly, and the original date of formal withdrawal was set as March 29, 2019. As the calendar rolled into 2019 it became obvious that the March closing date was not going to be met, and concerns mounted over delays, procedures, deal-or-no-deal, a new prime minister, and even calls for another vote.

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Even though the S&P 500 roared ahead by nearly 50% over the last three years, the traditionally low beta slow-growth Utilities sector outperformed during that powerful upswing. Nevertheless, today Utilities seldom look attractive by active managers and calls to overweight the sector are scarce.

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A preview of the upcoming Of Special Interest that will examine if the tortured process of Brexit is creating an opportunity to bottom fish washed-out and unloved U.K. stocks. Time to buy?

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The approach of Halloween brings thoughts of jack-o-lanterns, scary movies, and buckets full of candy. The season also marks the time when investors finally give up the ghost on the optimistic, even wishful, earnings forecasts made early in the year.

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Equity market themes have been boringly consistent of late; growth beating value, large beating small, and domestic beating international. In the factor world, Momentum and Low Volatility have been investor favorites for most of 2019 while Value resided in last place – the same old, same old. Then, something remarkable occurred on September 9^th.

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Something remarkable occurred on September 9th. Momentum crashed and Value soared on that Monday, in what one analyst described as a five standard deviation event. Do we have a clear understanding of what really happened? This research project takes a multi-faceted look at what transpired during one unusual week in September.

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The Momentum style—in which investors buy what has been going up recently—represents an optimistic, hopeful, “I’ll take some of that” mentality. The Low Volatility factor entails a pessimistic, fearful outlook in which investors want (or need) to stay invested in stocks but desire downside protection in case the market performs badly.

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Smart beta ETFs have become an immensely popular investment tool, attracting billions of dollars in AUM by providing investors with targeted exposure to factors such as Value, Momentum and Quality.  Characteristics such as these have been shown to generate alpha over time, and investors understandably wish to have focused positions in these return-generating styles. 

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A major difficulty in picking stocks based on quant factors is the need to make trade-offs. A company that looks attractive on one preferred metric will likely look unattractive on another. This study examines the uncomfortable give-and-take that complicates factor investing at the stock level.

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Investor sentiment seems to be unusually conflicted these days. There are worries aplenty, including numerous political skirmishes of consequence around the world, a slowing global economy, and lofty U.S. equity valuations. On the other hand, fiscal stimulus is high for this stage in an economic cycle and the Fed is easing monetary policy, two policy drivers it rarely pays to bet against.

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