Researchers at BNP Paribas Asset Management have found that the value factor was to blame for the underperformance of quantitative investing strategies in 2020. This according to a recent article in Institutional Investor.

The research team wrote in a recent paper, “Over the last 50 years of factor investing, we have witnessed a number of love and fear cycles for the use of factors to select stocks for portfolios. At present, 2019-2020 seems likely to go down in history as a period of fear, much like 2009-2011 and 1998-2000. These were periods when the most traditional combinations used by portfolio managers did not deliver.”

The BNP analysis reportedly found that U.S. value delivered negative excess returns of 6.7 percent monthly for the one year through last August, while other factors showed stronger results: momentum, for example, generated a monthly premium of 2.1 percent in the U.S.

The article cites comments from Two Sigma vice president Alex Botte, who wrote, “Value was 2020’s worst-performing factor, marking its fourth consecutive down year.” He added, “the poor performance was due in part to the factor’s short positioning in ‘work-from-home’ tech names that outperformed in 2020.”

This lagging performance, BNP found, dragged down multi-factor portfolios, and revealed the worst results tied to higher exposure to value. The team also found that the size factor—which favors small caps— exacerbated underperformance as large-cap tech stocks dominated.

But despite the underperformance of both the value and size factors, the BNP Paribas researchers remain optimistic about the future of quant investing, concluding, “We would find it surprising should the trends seen in both value and size continue much further.”