Searching for Alpha: Tactical Style Rotation: Using Risk and Return to Manage Style Exposure

Citi Research's quantitative team presents a tactical style rotation framework that manages global equity style exposure across two dimensions: risk and return. The model covers Europe, the US, Asia ex Japan and Japan, tracking seven styles — Value, Growth, Low Risk, Size, Quality, Price Momentum and Estimates Momentum — on a daily basis. Long-short style performance shows sharp regional divergence: over the past four weeks US Value returned 20.4% while US Growth fell 18.1%, Europe Low Risk led its region, Asia ex Japan Value gained 18.1%, and Japan Growth rose 23.3% against a -11.8% reading for Value. Tactical weights are derived by combining each style's current risk versus its long-term forecast with its short-term return versus long-term return. On this basis the model currently assigns Strong Underweight to the majority of regional styles, with only isolated Overweight positions, signalling caution on style crowding and near-term return prospects. The report also provides an inter