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Laxman Pai, Opalesque Asia: Low beta stocks recorded a strong rise as trade tensions escalated at the end of last week, said Lyxor in its Weekly Brief.
The defensive risk factor massively outperformed cyclical risk factors such as size and value over the past three months.
In the L/S Equity space, few strategies focus on low beta stocks, which typically involve companies from sectors such as utilities, consumer staples, health care, real estate, and communications.
However, Market Neutral L/S has a significant bias towards momentum stocks, which are now closely correlated to low beta stocks.
"Our defensive stance with regards to risk appetite in a context of decelerating economic growth, weak (or negative) earnings growth, elevated policy risks and the U.S. equity market at an all-time high, led us to upgrade Market Neutral L/S a couple of months ago," Lyxor said.
"We expect the strategy to perform better from now on than it did in recent months," it added.
Momentum is the new low beta
The outperformance of low beta stocks has translated into a rising correlation between the momentum and the low beta risk factors in the U.S.
From another perspective, the 6-month correlation of momentum with defensive sectors such as real estate, consumer staples, utilities, and health care has increased materially over the past six months.
Concurrently, the correlation of the momentum risk factor with cyclical sectors such as information technolo...................... To view our full article Click here
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