Morgan Stanley：Quantitative Investment Strategies：Opportunities in Quantitative Investment Strategies After Recent Market Volatility-20240813

Investment Rating - The report maintains a positive outlook for certain Quantitative Investment Strategies (QIS) while being less constructive on FX DM Carry and Equity Momentum [1][4][28]. Core Insights - The report highlights a shift in the investment hypothesis characterized by lower monetary policy rates in many countries and a soft landing for the global economy, although uncertainty has increased [1][4]. - QIS strategies expected to perform well include Rates Trend, Rates Long Straddle Replication, Equity Value, Equity Quality, and Equity Relative Value with VIX Volatility Carry [1][4][13]. - Strategies anticipated to face challenges include FX DM Carry and Equity Momentum due to recent market volatility and economic uncertainties [1][4][28][29]. Summary by Sections Backdrop - Recent market volatility was driven by soft US employment data and disappointing ISM Manufacturing PMI, leading to increased uncertainty about economic growth and a higher expectation of a Fed rate cut [4][5][9]. Fundamental Outlook - The Chief Global Economist at Morgan Stanley expects a soft landing for the US economy, with policy rates projected to end 2024 at 4.625% in the US, 3.25% in Europe, and 0.25% in Japan [10][11]. Performance of QIS - Year-to-date performance of key QIS strategies averaged +2.2% annualized, outperforming the long-term average of +1.8% [10][11]. - Despite recent volatility, QIS strategies generally delivered positive returns, although some strategies like Trend Following and FX DM Carry underperformed [10][11][16]. Specific Strategies - Rates Trend: A constructive outlook for medium-term rates Trend-Following strategies is noted, with signals turning flat to positive for US and European rates [16][20]. - Long Straddle Replication: This strategy is expected to benefit from current market volatility, providing convexity to portfolio returns [22]. - Equity Value and Quality: These factors are favored for their defensive characteristics in market corrections, with a combination of both recommended [22][23]. - Equity Volatility Carry: Implied volatility is above its historical average, indicating a substantial volatility risk premium, presenting an entry point for volatility strategies [22][23]. Challenges for Certain Strategies - FX DM Carry: This strategy has underperformed due to a strong JPY and is expected to continue facing negative returns [28]. - Equity Momentum: The strategy is anticipated to deliver below-average performance due to reduced signal intensity and heightened market volatility [29].