Chris Carrano – Designing Practical Factor Models (S7E20)

Bullish:

• $EQUITIES - Consider increasing equity allocation in portfolios, potentially shifting from a 60/40 to an 80/20 split.

  • “If I was gonna do this and I just switched to an eighty twenty, I'd be shocking a pro forma eighty twenty portfolio.”

    Chris·47:09

Bearish:

• $EM - Emerging markets show negative performance over long periods when isolated from other macro factors.

  • “Our EM factor is negative over long periods of time. So the residualized EM factor, the independent one, it is about a 150 bps per year. It's negative.”

    Chris·25:18
• $SMALLCAP - Small cap stocks underperform when isolated as a factor, contradicting the widely held belief in the 'small cap premium'.

  • “Small cap factor is not rewarded in our lens either. The market neutral implementation of small cap is negative over the full period.”

    Chris·52:48