Factor investing is the practice of investing based on exposure to a range of quantitative factors that have been shown to predict cross-sectional stock returns.
Over the past year, we have developed a global quant equity process based on three broad factor groups, namely value, quality, and sentiment.
The table below shows the performance of these factors over the past 5 quarters versus the MSCI World Index.
As equity market strength continued from last year, sentiment drove most performance over the first quarter of 2024, supported by encouraging economic data. Quality and value stocks lagged over the quarter.
Introducing the Mergence Global Quant Equity Portfolio
Based on extensive research and testing, we launched the Mergence Global Quant Equity Portfolio. This is an active quant fund with exposure to developed market equity that aims to outperform the MSCI World Index on a risk-adjusted basis over time.
The strategy launched at the beginning of January 2024 in a JSE-listed actively managed certificate (AMC), trading daily in rands with the ticker MERGE, and as a segregated fund for institutional investors. The AMC structure of the fund enables efficient management of the fund, which reduces the costs of management relative to traditional fund structures.
Stock selection is bottom-up using a multifactor model that integrates three differentiated factor strategies (risk premia) that drive market returns globally, namely value, quality, and sentiment.
The model does not forecast market outcomes but instead uses quantitative techniques and multiple strategies to manage risk and the cyclicality of various market risk premia. The result is a diversified multifactor model that holds stocks with multiple desirable attributes or themes.
The fund is managed by Fazila Manjoo, an experienced quant Portfolio Manager, and supported by the Mergence Investment Team.
Since the launch of the fund on 1 January 2024, the fund has had a strong start to the year, outperforming its benchmark by 3.34% over the first quarter.
For more information on this strategy, please contact our business development team.
Email: business_development@mergence.co.za
Source: Factset, Mergence Investment Managers, UBS. All returns are total returns in ZAR and priced at US close.
**Data updated to 31 March 2024. Past performance is not an indicator of current or future performance.
Our Market Snippets aim to provide concise insight into our investment research process. Each week, we highlight one chart that showcases our research, motivates our current positioning, or simply presents something interesting we’ve discovered in global financial markets.
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