1/ I feel like factor volatility has shot through the roof in 2020 and nobody is really talking much about it.

(I get it, there are more important things going on.)

2/ It isn’t unusual to see factor volatility jump in a crisis, but what is sort of weird about 2020 is that we’ve seen a bigger-than-usual jump in all the factors simultaneously.

3/ Let’s talk about June for a second.

Within a week, value was up 10% and momentum was -20%. A WEEK.

And look how almost completely mirrored these factors have become.

4/ Again, not totally unheard of from a return spread perspective. Anyone living through 1999 can tell you all about the rapid whiplashes between value and momentum.

5/ But June did hit <4th %-ile here for rolling 10-trading-day periods. That’s pretty gnarly.

But now consider this: what did the market do over this period?

6/ This is why a lot of people called June a junk rally. It was high volatility, negative momentum, cheap, small stuff that lead the way.

Is that healthy? No comment. I will say that it’s not unusual to see a momentum crash in a market recovery.

7/ But what thing I HAVE noticed is that the # of stocks falling into cheap, low momentum, high volatility quintiles spiked significantly as of late. https://twitter.com/choffstein/status/1275467660273254400

8/ This is a “problem” in so far as it can lead to unintentional crowding.

e.g. you trade value and your buddies trade momentum and low volatility. You get a margin call and need to de-lever. The more overlap in holdings you have, the more you impact their returns.

9/ What does it all mean? No idea.

I have zero explanation for the early June ramp other than an “unwind” of a factor convergence that occurred due to the overwhelming influence of a “COVID-19” factor that gripped markets in March.

10/ I’d certainly welcome any and all thoughts here.

FIN.