Sources of alternative alpha in 2021
Research Signals - February 2022
We recently reviewed 2021 key drivers of factor performance across the core Research Signals Factor Library. However, we are constantly in search of alternative sources of alpha using both IHS Markit proprietary datasets and other unique data from our partners to extend our factor suite beyond the traditional array of technical and financial statement-based signals. 2021 was a wild year that saw markets set all-time highs, despite the headwinds of speculative mania by retail investors across notable highly shorted stocks, a flurry of SPAC issuance, ongoing waves of COVID-19 and its variants, supply chain disruptions and historically high inflation in the second half. With that backdrop, we now review performance of several alternative factors - institutional ownership and social media sentiment.
- Institutional holding factor performance was especially robust in Emerging EMEA, led by % Hedge Fund Holdings (Count) with a 3.21% average monthly spread, while % Selloffs out of Sold (Count) posted strong results in both the US (2.72%) and Europe (1.76%)
- Using our internally constructed Social Media Indicator, Normalized Volume Adjusted Sentiment Score, stocks at the extreme tails (3 standard deviations) of the factor distribution identified as buy candidates outperformed sell candidates in the US and UK by spreads of 0.105% and 0.089%, respectively, based on average open-to-close returns
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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.