Institutional investors often pose the question of how factors perform across economic cycles. The concept of a normalized cycle has come under pressure in the post-Global Financial Crisis (GFC) era that has seen sustained quantitative easing, financial repression and lower trend growth. Consequently, this has necessitated a reappraisal of the traditional investment clock. In this paper, we focus on the new thinking, rebooting the investment clock to link factor behavior to secular regime shifts in the US market.

  • The investment clock’s analysis is predicated on the notion of a discernible economic or business cycle, whose existence is questionable post-GFC due to quantitative easing.
  • An evolution of the investment clock is to observe a pattern of secular regime shifts.
  • We find that regimes have a significant impact on factor payoffs, driven by the level and volatility of economic indicators.
  • Since GFC, below trend growth and inflation have oscillated in an all-time narrow range, and have proven to be a difficult environment for broad-based factor performance.  
  • If the past is any indication of the future, a more favorable environment for diversified factor investing is trend economic growth and target inflation.