Seeds of doubt

RV spreads have been drifting wider since May 2024, and on one measure – the ratio between MSCI Value and Growth indices – levels are now back to multi-year extremes (figure below). ... more

Looking ahead

Event-driven outlook

We begin 2025 with a survey of current opportunities in Metrica’s core strategies.

Firstly, in the event-driven (hard catalyst) strategy, one of the key performance drivers is the liquidity of the target universe, as it correlates with the frequency and depth of trading opportunities. ... more

Is this it? part II

Investors in Hong Kong and mainland Chinese stocks have been waiting a long time for the market to stop falling. In April we saw the beginnings of a tentative rebound, spurred by the announcement of shareholder-friendly reforms by the China Securities Regulatory Commission and positive macro / earnings headlines, but hopes were dashed soon after as the rally lost steam. ... more

Where we stand

We present an update of the value vs. growth draw-down chart featured in past newsletters. ... more

A resurgence of catalysts

The Ukraine conflict could have interesting implications for relative value (RV) strategies.

Historically, the worst period for RV strategy performance has been the low-yield, low-growth environment of the years between 2008 and 2020 (the shaded region in the figure below). By contrast, prior to 2008, when yields were higher, RV did well in both high-growth (1960s and 1980s) and low-growth (1970s) eras. It suggests that RV performance is more sensitive to yields than economic growth. ... more

It’s not too late

In November we identified a possible turning point in the under-performance of value, based on a sharp spike in the volatility of the Asia-Pacific Value/ Growth ratio, which resembled a similar event in the year 2000. The previous occasion marked the start of a long period of value out-performance.

This is important because a repeat outcome this time should be very positive for RV strategies, which naturally have a long value factor bias. ... more

A tailwind from dispersion

The main success factor for a relative value strategy is the absolute level of spreads, and as discussed extensively in recent newsletters, the narrowing of value spreads which started in November 2020 is still intact and contributing positively to performance.

A secondary success factor is a high level of dispersion, or the degree to which individual names within the spread universe are moving independently. This is because dispersion helps to mitigate the impact of the inevitable periods of overall spread widening which occur from time to time. It allows rotation out of names which are narrowing against the trend, and into other names which are widening. ... more

The case for tailored relative value

The figure below shows is an 18-year chart of the MSCI AC Asia ex-Japan Growth and Value indices. Growth tracked Value very closely over the entire period up to 2017. Since then, Growth has significantly outperformed.

Why is this? ... more