Hamson asks. To find out, he looked deeper into historical data, and learned that in terms of the underperformance of value and momentum factors, the financial crisis was comparable to the turmoil experienced in the Great Depression. The failure of these factors, relied upon by many quants, was not unprecedented: investors needed to look back further to find a historical parallel. Over time, momentum has delivered. It has also hurt. “We need to be aware of the negative skewness of that factor, because it can blow you away,” Hamson says. In some part, quants’ poor performance was due to their participation in crowded trades. But it was the macroeconomic shockwaves from the crisis and its aftermath that overcame models, Hamson says, as momentum and volatility drowned value and earnings revisions signals. The inability of company analysts to update corporate earnings forecasts as the market fell didn’t help either.

When Hamson asked them why the information flow had stopped, he was told that CEOs had stopped talking to analysts. This has encouraged him to rely less on analysts’ information. It should be noted that analysts weren’t too concerned with earnings forecasts: in a sign of the times, they wanted to know whether companies’ balance sheets were strong enough for them to live another day. In addition to developing some independence from analyst information, Plato aims to develop a method of identifying large and prolonged downward trends in momentum. This can be done, he says, because quant is flexible. “You can implement any strategy as long as you put it into mathematical terms.” Processes must evolve, but not change radically: momentum, value and earnings revisions have performed well for years, Hamson says, and should not be discarded after a period of underperformance, however steep it has been. For investors to single out quant processes as the only victims of the crisis is somewhat myopic. “Nearly all active strategies had periods of underperformance through the GFC,” says JANA’s Marshman.

The “outright turmoil” in markets and the collapse of justifiably cheap companies troubled value managers, he says, and the boom in resources stocks was not something they could enjoy. Growth managers, meanwhile, were hit hard in the early stages of the crisis but went on to recover from overselling. The relative winners throughout the period are thematic strategies, which followed the resources theme and subsequently developed a tilt to emerging markets. However, in Marshman’s opinion, quality as a theme was insufficiently rewarded. “This appears to be a direct result of the quantitative easing policies of the US. However, in our view, this leaves a great opportunity for active global managers in the future.” It explains JANA’s focus on finding quality in markets today, which means investing with fundamental stock analysts targeting “sound companies” that are “well-managed [and] with largely secure top-line revenues”. “Today, such quality can be acquired relatively inexpensively [and] can be found in Australia, the US and Europe and in emerging markets.”