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US Dynamics
Equity alpha insights
This research series covers our monthly quantitative ranking of the
approximately 3,000 US stocks in our database, along with the ranking of six
investment style factors, 10 GICS sectors, 22 industries and 15 size/style
indices. Our research is also available in a spreadsheet format.
Style review
November was a generally strong month for US quantitative investors. Sentiment
and momentum remained very strong, and quality also performed well. Valuation
and growth factors were largely flat, and trading signals suffered as smaller,
riskier stocks outperformed.
Macro distance model forecast
The Macro Distance model, which makes style forecasts given the prevailing
macro-economic regime, recommends overweighting sentiment, growth and
momentum factors. In contrast, the model does not have a favorable outlook for
value and quality factors for the coming month.
EMC2sector/size recommendation
Our EconodynaMiC-US equities (EMC2-USE) alpha model suggests
overweighting the energy, materials, and telecom services sectors. In addition,
we recommend underweighting the consumer discretionary, consumer staples,
and financials sectors.
On the industry level, we recommend overweighting energy, materials, capital
goods, auto & components, food, beverage & tobacco, software & services, and
telecom services. Our model also recommends underweighting the following
industries: commercial services & supplies, consumer durables & apparel,
media, food & staples retailing, household & personal products, banks, and
insurance.
We believe large-cap stocks are likely to outperform mid-cap and small-cap
stocks in December 2010.
Stock recommendation
In Section III, we provide our EMC2-USE ranking and alpha decomposition for all
stocks in our universe. We break down our analysis, first by industry, then by
market cap. The forecast horizon is for December 2010.
Model performance
Our EMC2-USE model outperformed in November, however the pure stock-selection
was weak – the IC and sector-neutral IC were 3.9% and -3.7% respectively. The topranked stocks outperformed the bottom-ranked stocks by 1.8%.
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