European Quant Strategy: Style Investing: QMI ‘Contraction‘; Reducing Risk, Increasing Quality

Research evidence excerpt

European Quant Strategy: Style Investing: QMI ‘Contraction‘; Reducing Risk, Increasing Quality

J P M O R G A N Global Markets Strategy

26 June 2026

European Quant Strategy

Style Investing: QMI ‘Contraction’; Reducing Risk,

Increasing Quality

• European QMI rotates to the ‘Contraction’ phase. Global Quantitative Strategy

AC After two years in the ‘Recovery’ phase, the European QMI, our macro Khuram Chaudhry

navigational tool, has decisively rotated towards the ‘Contraction’, signaling (44-20) 7134-6297

a higher probability of economic growth disappointment. This month 5 out of khuram.chaudhry@jpmorgan.com

6 QMI inputs are now falling, and a shift in style leadership is very likely to Ayub Hanif, PhD

follow. Simply put, the message is to reduce High Risk, and add High Quality (44-20) 7742-5620

& Low Volatility. We are now overweight Value & Quality/Low Volatility ayub.hanif@jpmorgan.com

(QaRP), underweight Growth & High Risk, and neutral Momentum and Size. William Summer

We have rotated away from the ‘Recovery’ phase following positive returns – (44-20) 7742-6079

william.summer@jpmorgan.com

L/S QMI is up by +29.2% with a Sharpe ratio of 3.3. L/S Risk is up by 51.1%, J.P. Morgan Securities plc

with a Sharpe ratio of 3.9. L/S Value is up 25.7%, with a Sharpe ratio of 2.6.

L/S Quality is down 32%, and L/S Growth is down 3.7%.

• High Risk now looks even riskier. Figure 1: JPM European QMI inputs

As quants, mean-reversion theory is ingrained into our thinking, but in practice 5 inputs are falling, and 1 input is rising

the need for a catalyst frequently helps to establish the timing associated with German Manufacturing Confidence Falling

a change in investor behaviour. Today, the QMI, along with relative earnings Change in European bond yields Falling