Corporate Bond Multi-factor strategy in a Market Crash

Since May 2012, Jyske Capital has made the use of a multi-factor strategy, with a combination of Value, Momentum and Quality. A bottom-up strategy aimed to generate robust excess performance through the cycle – even during times of distress.

During the 1st leg of 2020, in the midst of the COVID-19 crisis, the strategy has outperformed the Global High Yield benchmark by approx. 250 bps. Where the single factor have played their expected role during the market crash. Similar to the financial crisis of 2008, the PIIGS crisis of 2011 and the shale oil crisis of 2015, the multi-factor strategy has delivered robust returns and smaller drawdowns than the market. The ‘flight to quality’ effect of the Quality factors seems to be at large. Quality is greatly outperforming by approx. 400bps. On the other hand, Value is underperforming the benchmark by 550bps.

Compared to a simple Carry strategy, showing an immense underperformance of more than 1350bps, the drawdown return of our multi-factor strategy is far superior compared to the global high yield benchmark. During all three aforementioned crisis, the multi-factor strategy has managed to reduce drawdown without removing the upside when the market turned around.