The long period of low interest rates made risk premia strategies popular, especially because of their promise of uncorrelated returns. February 2018 was a first stress test as equity markets lost up to 10% in a few days. The majority of strategies showed a strong link to equities and generated significant negative returns. This was a reminder that picking the right risk premia strategy is crucial.
The majority of risk premia strategies were launched during a calm market period beginning in 2016. February was the first stress test for those funds, challenging their correlation attributes when eq- uity markets lost 8%-10%. During these days risk premia strategies showed a large dispersion in re- turns and the performance of the majority suffered considerably. How did this beta exposure get into the portfolios despite most of them not having any explicit long equity exposure? The sources can be manifold and investors have to be aware of them.
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