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Our ideas on building effective momentum strategies

While conventional momentum strategies typically generate high returns, they tend to be exposed to high degrees of unrewarded dynamic risk. Robeco’s approach is aimed at avoiding those risks.


Concerns regarding the new Fama-French 5-factor model

12-12-2016 | Research

Nobel prize laureate Eugene Fama (pictured) and fellow researcher Kenneth French have revamped their famous 3-factor model by adding two new factors to analyze stock returns: Profitability and Investment. But this 5-factor model raises many questions.

Dynamic duration management in times of rising yields

07-12-2016 | Insight | Johan Duyvesteyn, PhD, CFA, Olaf Penninga

Bond yields have declined to unprecedentedly low levels over the last three decades, resulting in stellar returns but also creating a more challenging outlook for the future. As a result, clients regularly ask whether our Robeco Lux-o-rente strategy will also be successful in a rising yield environment. An extended backtest that encompasses several decades of rising yields, notably in the 1970s, suggests this should be the case.

From the field: A long-term perspective

30-11-2016 | David Blitz, PhD

The 2015 edition of the Global Investment Returns Yearbook contained several interesting long-term analyses. One chapter documents the existence of value and momentum effects for US and UK industry returns since 1900. This is yet another confirmation of the seemingly universal presence of these two effects.

What is factor investing?

15-09-2016 | Insight | David Blitz, PhD, Joop Huij, PhD

Although Factor Investing is rapidly gaining popularity, there are still ongoing debates about this concept. In our view, the key feature of Factor Investing is that asset owners select factors and their weights themselves, rather than leaving this up to their asset managers.

Factor Investing with smart beta indices

06-07-2016 | Research | David Blitz, PhD

Smart beta indices are a popular way of implementing a factor investing strategy. However, research suggests that this may not the best way, as the factor exposure provided by popular smart beta strategies varies greatly and they do not unlock the full potential of factor premiums.

Factor investing case studies – the merits of tailor made solutions

06-07-2016 | Insight | Chris Suiker, Graham Elliot, Joop Huij, PhD, Mark van der Kroft

Factor investing – the investment strategy that aims to capture ‘hidden’ returns in financial markets – is rapidly gaining in popularity. However, it is important to follow the right factors, and to be wary of one factor counteracting another, to get the best results. Otherwise, investors might follow generic factor strategies that expose them to risks that are not properly rewarded, resulting in inferior performance.

From the field: Do fund flows cause the value and momentum effects?

25-05-2016 | Insight | David Blitz, PhD

In his witty style, James Montier takes a critical look at recently popular investment concepts such as smart beta, risk parity and real assets*. We actually agree a lot with what he is saying.

Bargain Hunt: looking for value in global equities

10-05-2016 | Insight | Maarten Polfliet

Investors looking for value in global equities have been disappointed in recent years, as ‘expensive defensive’ and growth stocks have held sway in markets. But over the long term, value investing can be shown to outperform growth investing, depending on the economic environment of the time, says Robeco portfolio manager Maarten Polfliet.

Making the most of Momentum

29-03-2016 | Insight | Willem Jellema

There is strong evidence that momentum investing works, even though some critics claim that a stock’s past performance can’t be relied on to predict its future returns, and that momentum strategies can involve high turnover and the risk of a trend reversing.

Unlocking global opportunities in equities

12-01-2016 | Interview

In a recent webinar, Funds Europe spoke to Chris Hart, portfolio manager of the Robeco Boston Partners Global Premium Equities Fund, about how he seeks to tap into global opportunities from a value and growth perspective.

Factor Investing in the Corporate Bond Market

11-12-2015 | Research | Jeroen van Zundert, Patrick Houweling, PhD

We provide empirical evidence that the Size, Low-Risk, Value and Momentum factors have significant risk-adjusted returns in the corporate bond market. By combining these factors in a multi-factor portfolio, drawdowns and tracking error vs. the market are reduced, while the higher return and Sharpe ratio are preserved.

Can mutual funds successfully adopt factor investing strategies?

24-11-2015 | Insight | Joop Huij, PhD

To the best of our knowledge, no study has been conducted on the added value of innovative investment strategies that incorporate academic insights. As a result, we do not know how many investment managers have incorporated academic insights or how successful they are. We have researched the topic to fill this gap in the literature.

From the field: JP Morgan confirms our findings on momentum strategy

13-10-2015 | Insight | David Blitz, PhD

A recent paper* by JP Morgan (JPM) Quant explores applying a residualization technique to ‘purify’ the momentum signal and reduce the related risks

From the field: Volatility-scaled momentum

03-09-2015 | Insight | David Blitz, PhD

A paper* suggests scaling a conventional momentum strategy by its 6-month historical realized volatility in order to target a constant risk level. The authors find that this volatility scaling doubles the risk-adjusted performance of a momentum strategy, and significantly reduces drawdowns.

Balanced exposure to factors in credits

23-07-2015 | Patrick Houweling, PhD

Robeco Global Multi-Factor Credits, launched on June 15, 2015, is an innovative fund offering balanced exposure to the Low-Risk, Value, Momentum and Size factors in the credit market.

The beauty and the beast of value and momentum investing

22-07-2015 | Research | David Blitz, PhD

We usually focus on how to make a good investment strategy even better, but in recent research we looked at how to make it worse.

From the field: Value and momentum profits declining?

24-06-2015 | Insight | David Blitz, PhD

A paper argues that many popular return anomalies have materially diminished in strength and significance over time. Are value and momentum profits declining?

Is rebalancing the source of factor premiums?

12-02-2015 | Research | David Blitz, PhD

Some argue that the mere mechanism of rebalancing increases returns, and that this explains the success of factor investment strategies. Although factor strategies do need rebalancing to maintain their exposures, there are several reasons why it is unlikely that this is their source of added value.

Robeco quant EM equities outperforms generic factor indices

19-01-2015 | Research | David Blitz, PhD, Wilma de Groot, CFA

We have compared the realized performance of our quantitative emerging markets equities (QEME) strategies with the hypothetical performance of recently launched generic factor indices.

How factor investing also works for corporate bonds

11-11-2014 | Insight | Jeroen van Zundert, Patrick Houweling, PhD

Two Robeco researchers have become the first to analyze the effect that factor premiums can have on corporate bond investing.

When factors disagree

30-09-2014 | Research | Bart Van der Grient, David Blitz, PhD, Pim van Vliet, PhD

Generic strategies designed to harvest a certain factor premium regularly conflict with other factor premiums. We find that the premiums associated with these strategies tend to shrink, sometimes even to zero, in these periods of factor disagreement. But enhanced factor strategies avoid stocks that are unattractive on other established factors and continue to deliver when generic factor strategies struggle.

Robeco’s residual momentum: less risky and more sustainable

25-10-2013 | Insight | Simon D. Lansdorp, Willem Jellema

Behavioral explanations of momentum suggest that momentum can be caused by overreaction or underreaction. The latter, which turns out to be less risky and more sustainable, is exploited in Robeco’s quantitative models.

Momentum from underreaction: less risky and more sustainable

25-10-2013 | Insight | Simon D. Lansdorp, Willem Jellema

Momentum investing: the next game changer?

14-03-2013 | Insight | Willem Jellema

Investors are increasingly allocating strategically to factor premiums. But momentum has—so far—missed the party, thanks to its associated challenges. Willem Jellema looks at new ways to capture the momentum premium while eliminating the drawbacks.

The momentum factor: the basics and Robeco’s solution

14-03-2013 | Insight | Willem Jellema

The added value of factor investing

16-11-2012 | Insight | Tom Steenkamp

In this video, Investment Solutions’ Tom Steenkamp discusses Robeco research showing that the traditional small-cap, value, low-volatility and momentum factors not only improve equity portfolio efficiency but also work for credit and commodity portfolios.

Residual Equity Momentum for Corporate Bonds

17-08-2012 | Research | Daniël Haesen, CFA, Jeroen van Zundert, Patrick Houweling, PhD

Residual Equity Momentum for Corporate Bonds

Short-term residual reversal

17-08-2011 | Research | David Blitz, PhD, Joop Huij, PhD, Marno Verbeek, Simon D. Lansdorp

A short-term reversal strategy based on residual momentum reduces exposure to systematic factors and results in lower risk and better returns than a conventional momentum strategy.

Another look at trading costs and short-term reversal profits

01-07-2011 | Research | Joop Huij, PhD, Weili Zhou, CFA, Wilma de Groot, CFA

Several studies report that abnormal returns associated with short-term reversal investment strategies diminish once transaction costs are taken into account.

Value and Momentum in Frontier Emerging Markets

14-09-2010 | Research | Laurens Swinkels, Wilma de Groot, CFA

Not only do the value and momentum effects exist in frontier markets, these effects are uncorrelated with each other and with similar strategies in developed and emerging markets.

Foundation Paper: Stock Selection Strategies in Emerging Markets

01-12-2000 | Research | Dick van Dijk, Erica Slagter, Jaap van der Hart

A number of different quantitative investment strategies are applied to emerging markets. Value, momentum and earnings revisions strategies are found to be the most successful. This paper was later published in the Journal of Empirical Finance.

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