The Fall of Big Tech Is Boosting Stock Quants on Wall Street

(Bloomberg) — Another tech plunge, another shot in the arm for stock quants mounting a big comeback in Wall Street’s awful year.

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As the Federal Reserve ramped up its hawkish policy guidance this week on still-raging inflation, the once-booming Faang megapcaps lost a further $568 billion in market value, bringing the cohort’s total capitalization to the lowest since mid-2020.

With rising interest rates spurring an abrupt end to the leadership of Big Tech, the largest technology companies are wielding less and less power over broader indexes, as former high-fliers like Meta Platforms Inc. and Amazon.com Inc. crash anew in the latest wave of selling. Reversing the extremes of the cheap-money years, the capitalization-weighted S&P 500 hit the lowest versus an equal-weighted version of the benchmark since 2019.

All this is a boon for so-called factor investors, who dissect equities according to their math-derived traits, from how cheap equities look to how fast they’ve risen. These funds are typically underweight the tech megacaps and have a propensity to spread out their exposures, a favorable setup in this era of improved market breadth.

In 11 of the last 13 sessions where the S&P 500 has dropped more than 2%, strategies beloved by factor funds like value, quality, momentum and low volatility have all made money, according to Dow Jones’ market-neutral indexes.

“You got a much more diverse opportunity set that allows for more factors to come into play,” said Sean Phayre, head of quantitative investments at Abrdn Investment Management. “Previously 2019, 2020 was a very one-dimensional market.”

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Systematic managers who deploy factor strategies in one form or another are on a winning streak. The AQR Equity Market Neutral Fund has rallied anew since October to notch a 21% gain so far this year. The Jupiter Merian Global Equity Absolute Return Fund, which bled assets throughout the tech bull run, is up nearly 7%.

The math whizzes of Wall Street crunch data to find patterns across the entire stock market. That means…

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