“April 20 (Bloomberg) — Companies with the most debt and lowest returns on assets are turning the biggest six-week rally in stocks since 1938 into a bloodbath for last year’s best- performing trading strategy.

Investors using so-called quantitative momentum strategies — which speculate that the worst stocks in the past 12 months will continue to decline — have become this year’s biggest losers after banks and companies that rely on consumer spending surged. Quant momentum techniques may have lost 27 percent this month in the U.S., the most since at least 1993, while those in Europe may have dropped 20 percent in March and 24 percent in April, according to data compiled by JPMorgan Chase & Co.

“Not in a million years would we have expected this gyration to be as vicious and enduring as it has been,” Steven Solmonson, the head of Park Place Capital Ltd., a hedge fund that oversees $150 million, said in an interview from New York. “The quants got whipsawed badly.”

The turnaround battering investors who use mathematical models to pick stocks is making heroes out of last year’s worst- performing money managers. Bill Miller, who lost 55 percent in 2008 running the Legg Mason Value Trust after beating the Standard & Poor’s 500 Index for a record 15 straight years, is topping the measure again. Value investors buy companies that are the cheapest relative to their earnings or assets….”

More here at Bloomberg. 

Hat-tip for the lead to Eddie Elfenbein at Crossing Wall Street