Monthly Update: Volatility & Quality

A factor-based equity strategy systematically invests in stocks that exhibit certain characteristics – called factors – that have historically been associated with outperformance. Common examples include value, momentum, quality and low volatility.

The strategies are based on objective rules and data-driven analysis, not subjective judgments or gut feelings. This makes decision-making more consistent and less sensitive to market fluctuations. The portfolios are rebalanced regularly, often monthly, to adhere to the factors on which the strategy is based.

It is important to understand that factor strategies still invest in stocks and therefore have a high correlation with the stock market. They can therefore be expected to decline in value during broad market declines. Another risk is that factors can underperform for longer periods, which requires patience and discipline from the investor. The biggest risk is often not the model itself, but rather abandoning the strategy when things go wrong.

The Value & Momentum strategy combines two well-documented factors: low valuation and strong price momentum. The aim is to find stocks that are both fundamentally attractive and show a positive trend. The combination makes it possible to avoid so-called value traps – stocks that look cheap but continue to lose value.

Unlike a pure momentum strategy, which focuses solely on price gains and is often driven by a few big winners, Value & Momentum tends to provide a more even distribution of gains and losses. It reduces the reliance on individual extreme movements. At the same time, the strategy may miss some highly valued growth stocks with strong momentum that do not pass the value filter. Pure momentum often works best in strong bull markets with clear trends, while the combination of value and momentum tends to be more robust over time and in different market environments.