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Quantitative Investment Strategies

2021 Key Themes in Review

Economies reopening. New consumer spending and trading habits. Rising prices. A wave of new Chinese regulations. Surging demand for ESG-focused funds. 2021 was a year of significant change for investors and the global economy. In our new publication, Key Themes: 2021 Year in Review, the Quantitative Investment Strategies (QIS) team highlights the trends we’ve monitored and what they tell us about the evolving market environment as we head into a new year.

KEY PHRASE USAGE IN GLOBAL EARNINGS CALLS

QIS looks at over 25,000 global earnings calls across 60+ countries in order to understand what phrases companies are communicating to the public and what topics are being discussed. In 2021, we observed increases in phrases such as “pandemic”, “social media”, “inflation”, “emission”, “retail investors”, “higher cost”, and “climate change.”

Leveraging machine learning techniques lets us monitor what companies are saying and helps us make data-driven investment decisions.

 

Source: Goldman Sachs Asset Management. Based on data released as of December 31, 2021.

PRIMARY FACTOR PERFORMANCE IN 2021

The QIS Proprietary Value and QIS Quality factors performed positively in 2021, surpassing pre-pandemic levels. Although both traditional Quality and traditional Value exhibited positive performance in 2021, only traditional Quality has surpassed pre-pandemic levels. While performance for traditional Momentum was negative in 2021, performance for the QIS Proprietary version was relatively flat. Additionally, 2021 was a year with high factor dispersion within Value, with cheaper stocks trading at a 42% discount compared to more expensive stocks. This discount is higher than the ten-year average discount of 28%.

 

Traditional

Quality: 12-month ROE and debt to equity ratio

Momentum: 12 month historical price return

Value: 12-month operating cash flow to price ratio, projected EPS to price ratio, and B/P.

QIS Proprietary

QIS incorporates traditional versions of factors augmented with proprietary signals that leverage machine learning techniques to synthesize vast amounts of nontraditional, unstructured data.

Factor Performance

 

Sources: Goldman Sachs Asset Management. Based on data released as of December 31, 2021. S&P Dow Jones Indices LLC.

Past performance does not guarantee future results, which may vary.

REOPENING THE WORLD

Consumers massively altered their habits in response to the pandemic and associated lockdowns. The QIS team aggregates geolocation data, credit card transaction data, web traffic data, point-of-sale data and other metrics to help us understand which companies may be the beneficiaries of increased consumer attention. We believe that our alternative data signals have been valuable in navigating this evolving market environment.

Reopening the World

 

Source: Goldman Sachs Asset Management. Based on data as of December 31, 2021.

Past correlations are not indicative of future correlations, which may vary.

RISE OF RETAIL TRADING

 

During the course of the pandemic, individuals poured money into equities and options trading partly due to 1) pandemic factors, such as work from home & reduction in traditional entertainment options and 2) secular causes, such as reduced friction from zero commission trading & expansion of stock ownership. We monitor retail trading activity for alpha opportunities because we believe that retail trading exhibits patterns of short-term persistency due to autocorrelation of flows but medium-to-long-term reversal.

Retail Trading Flows

Sources: Bloomberg. Goldman Sachs Asset Management. Goldman Sachs Global Markets Division. CNBC. Subredditstats.com. Statista.com

INFLATION

 

With the recently increasing inflationary pressures, the QIS team actively monitors different components of inflation in order to create a holistic investment view. Among other considerations, we look at which industries should expect to be impacted by inflation and use natural language processing to identify which industries mention inflation more frequently. Our analysis has found that these and other metrics measure very different features of inflation.

Inflation

 

Source: Goldman Sachs Asset Management. Based on data as of December 31, 2021.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG)

 

Investors poured a record $649 billion into ESG-focused funds worldwide through Nov. 30, up from $542 billion in 2020 and $285 billion in 2019. Additionally, support for environmental and social proposals at US shareholder meetings rose to 32%, a 5% increase from 20201. In order to manage the potential paradigm shift of a transition to a low carbon economy, the QIS team has applied a strategic climate-aware tilt to all its equity alpha portfolios, with the objective of reducing the carbon footprint of our portfolios by at least 25% relative to benchmark.

 

The track record information and operational commitments on this page also relate to Goldman Sachs’s sustainability practices and track record at an organizational and investment team level, which may not be reflected in the portfolio of the product(s).

 

ESG

 

Sources: Goldman Sachs Asset Management. Based on data as of December 31, 2021. Goldman Sachs Asset Management, ESG Considerations in the Equity Alpha Investment Process, December 2020. Goldman Sachs, Carbonomics, November 2021

1Reuters. How 2021 became the year of ESG investing. November 4, 2021 

Related Insights

Disclosures

Please refer to the full report for important risks additional disclosures.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Goldman Sachs Asset Management to buy, sell, or hold any security. Views and opinions are current as of the date of this material and may be subject to change, they should not be construed as investment advice.

Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up. A loss of principal may occur.

THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO.

Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. It should not be assumed that investment decisions made in the future will be profitable or will equal the performance of the securities discussed.

Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources.

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