The Quantitative Investing Team at Turner Investment Partners has a great report (click here for the full report) about the characteristics of the current rally off the bottom. We have written about this laggard rally quite a bit in the last month. It has been such a historic laggard rally that we are seeing a lot of research coming out that puts things into perspective.
Turner’s team focuses on small cap stocks, which is different than our universe. We tend to focus on the mid to large cap universe, but it seems the small and micro caps have seen the exact same phenomenon. They have a couple of fundamental factors they examine, but also include price momentum. Their conclusion:
“In our analysis, this rally was an atypical, perverse phenomenon, a statistical fat tail, an investing anomaly. We doubt that any time soon we will encounter a stock market rally that so lavishly rewards The Uninvestables….”
In financial markets it seems the “statistical fat tail” occurs much more often than people think, so I’m not sure if we will see this type of rally again soon or not. The proverbial 100 year storm seems to come every 5 years or so. But I do agree that with their analysis that this rally has been statistically out of the norm, and one that has been difficult to navigate if you invest in strong RS or momentum securities.
