Recent history underscores the challenges that may come with heightened factor volatility for approaches that are not style-pure. For example, the quality factor rebounded by 4% in the week ending October 24, 2025, after a 17% drawdown since July – the factor’s steepest decline in recent years apart from late 2020 and early 2021.1 As similar reversals become more frequent and pronounced, active strategies seeking to deliver consistent returns, but which are not style-pure, may face challenges from investment style biases.
The idiosyncratic nature of excess-return drivers in Alpha Enhanced strategies can be seen through the typically low correlation among quant managers and their even lower correlation with fundamental managers. This…
