ab16 February 2024Global Research and Evidence LabQuant NavigatorQuant Models for Fundamental Investors: Opportunities & Risk, February UpdateQuant Navigator: Leveraging Quant Tools with Human InsightsQuantitative tools enable us to analyze large volumes of historical information: test observed historical relationships, build forecasting models, identify sources of risk and subsequently, rank stocks on favored characteristics. Where quant models are at a disadvantage, we can leverage human insights to make more informed investment decisions. By combining human insights with machine analytics, we're able to address the various sources of return variation (beta, macro, style, sector, and idiosyncratic). In our recent publication, Quant Navigator "Quant Models for Fundamental Investors: Opportunities & Risk", we introduced a suite of tools and models that help navigate both risk and opportunity (Figure 1UBS Quant Navigator ). In this note, we look to see where our models are currently positioned.Where are Opportunities Today?Over the last month, both cross-sectional volatility and pairwise correlations edged lower and are now at or near historical norms. Headwinds persist for investors. Our forecast volatility model is showing that volatility will continue to remain low for the first half of the year. Generally, low volatility coincides with periods of investor greed (risk-on), while higher volatility points to investor fear (risk-off). Though we are in a period of risk-on, investors bucked historical trends, favoring quality, growth and momentum (normally favored during periods of fear) to start the new year. The level of outperformance was outside of historical ranges for most of the factors, while value's underperformance was within historical ranges. The current mix of our Sector Rotation is overweight Cyclicals (+39%) and underweight Defensive (-39%). Our ML Earnings Growth model has highest conviction on the upside for Real Estate Management, Banks and Transportation with high conviction for the downside on Energy, Teleco Services, Food Bev & Tobacco and Utilities.Stock ScreensWe present stock screens using our ML Earnings Growth Model, Crowding & Analyst Survey Intersection and Catalyst flags. Email qa@ubs.com for access to full datasets.Figure 1: UBS Quant Navigator Source: UBS QuantThis report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 14. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.EquitiesGlobalQuantitativeJaiwish NolanAnalyst jaiwish.nolan@ubs.com +1-212...
