AlphaRank Top Stocks – The Quant Tremor

A sharp factor unwind exposed the fragility of crowded quantitative long-short strategies, but such tremors are usually temporary and create opportunities for selective stock positioning.

• The August 2007 quant quake lasted four trading sessions and reversed dramatically on the fifth, establishing the pattern used to interpret later, smaller quant tremors.
• The latest shock followed Moderna's cancer-vaccine announcement, which sent its stock up more than 175% in one day, the largest one-day gain for an S&P 500 stock in at least 25 years.
• The average systematic long-short equity fund fell 1.4%, more than three standard deviations and its worst daily loss in over two years, while the broad market was roughly flat.
• A Treasury announcement doubling long-duration bond buybacks from $2 billion to $4 billion followed a rise in the 30-year yield above 5.3%; yields nevertheless ended the week higher, while the dollar fell 0.56% and gold rose 5.2%.
• The GS VIP longs minus GS Most Shorted basket reached a new yearly low and was down 24% year to date, as low-quality stocks outperformed and high-quality stocks lagged.
• Accelerate's model rates Valero Energy 100/100, citing 7.4x EBITDA, 34.4% return on capital, a 9.5% free-cash-flow yield and 7.3% share repurchases; Telus scores 13.4/100 after cutting its dividend, lowering guidance and retaining a valuation the author considers excessive.

Takeaway: The author expects quantitative strategies to recover after the temporary dislocation and favors long Valero and short Telus, while noting that the recommendations are tied to Accelerate's ranking model and disclosed fund positions.