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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
What’s Working, What’s Not
ion of our new product : This is the third edit Key Debate •
that focuses on what styles are generating returns for
uestion of which styles have investors. We address the q
ar and month. We also been working over the past ye
ween the 2003-07 and the evaluate the differences bet
in terms of winning styles (pages 8- ongoing bull markets
9). We filter stocks that have the most “Overweight” or
ed on styles (page 7). “Underweight” signals bas
What has happened over the past month and 12 •
For long-only fund manages, over the past months?
as low free cash flow) and month, low quality (defined
big losers, whereas high high beta continue to be
institutional ownership, momentum, and valuations
r hedged funds, in the most appear to be in favor. Fo
growth seem to be making a recent month, leverage and
rategies. High beta and comeback as stock-picking st
momentum continue to lose money for these investors.
vestors have been rewarding Over the past 12 months, in •
capex, rising institutional stocks of companies with low
ownership, stocks with inexpensive valuations, and
In contrast, high beta and trailing monthly performance.
low quality (low free cash flow) have been losing
rategies are bit these winning st strategies. Some of
ed over the long run (see different from what has work
adjoining text).
Our product focuses on assessing which Our Approach: •
factors or styles are working and which ones are not. We have
reviewed the performance of 18 most actively used styles and
back-tested their ability to pick stocks (both winners and losers)
in a portfolio context. We calculate factor (investment style)
returns as follows: At the end of each month, we sort the stocks
in our universe on their current exposure to the given style (for
P/E, we sort stocks on P/E as at the end of the month). We
then form a portfolio of stocks using the top and bottom quintile
and calculate the median returns for each basket going 12
months forward. We accumulate these returns for each month
by re-sorting at the end of each month, going back to 1993.
This methodology allows us to test the efficacy of a given style
in picking both good and bad stocks. Our 18 factors include
factors from three categories: fundamentals (quality, growth
and financial leverage), valuations, and market dynamics (like
price momentum, ownership, beta and size).
Over the long run, not surprisingly, the market focuses on a •
combination of high quality, high growth, cheap valuations, and
small size. Stocks with these characteristics do well over
market cycles. The factors that do not work well in picking
stocks include high consensus ratings, high institutional
ownership levels, and high beta. The market message is mixed
on certain growth and quality metrics such as free cash flows
and ROE delta, but it likes companies with disciplined capex.
There is surprising bias for past winners in future winners –
implying stocks that have been doing well appear to be
continuing to do well
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
What’s Working, What’s Not
ion of our new product : This is the third edit Key Debate •
that focuses on what styles are generating returns for
uestion of which styles have investors. We address the q
ar and month. We also been working over the past ye
ween the 2003-07 and the evaluate the differences bet
in terms of winning styles (pages 8- ongoing bull markets
9). We filter stocks that have the most “Overweight” or
ed on styles (page 7). “Underweight” signals bas
What has happened over the past month and 12 •
For long-only fund manages, over the past months?
as low free cash flow) and month, low quality (defined
big losers, whereas high high beta continue to be
institutional ownership, momentum, and valuations
r hedged funds, in the most appear to be in favor. Fo
growth seem to be making a recent month, leverage and
rategies. High beta and comeback as stock-picking st
momentum continue to lose money for these investors.
vestors have been rewarding Over the past 12 months, in •
capex, rising institutional stocks of companies with low
ownership, stocks with inexpensive valuations, and
In contrast, high beta and trailing monthly performance.
low quality (low free cash flow) have been losing
rategies are bit these winning st strategies. Some of
ed over the long run (see different from what has work
adjoining text).
Our product focuses on assessing which Our Approach: •
factors or styles are working and which ones are not. We have
reviewed the performance of 18 most actively used styles and
back-tested their ability to pick stocks (both winners and losers)
in a portfolio context. We calculate factor (investment style)
returns as follows: At the end of each month, we sort the stocks
in our universe on their current exposure to the given style (for
P/E, we sort stocks on P/E as at the end of the month). We
then form a portfolio of stocks using the top and bottom quintile
and calculate the median returns for each basket going 12
months forward. We accumulate these returns for each month
by re-sorting at the end of each month, going back to 1993.
This methodology allows us to test the efficacy of a given style
in picking both good and bad stocks. Our 18 factors include
factors from three categories: fundamentals (quality, growth
and financial leverage), valuations, and market dynamics (like
price momentum, ownership, beta and size).
Over the long run, not surprisingly, the market focuses on a •
combination of high quality, high growth, cheap valuations, and
small size. Stocks with these characteristics do well over
market cycles. The factors that do not work well in picking
stocks include high consensus ratings, high institutional
ownership levels, and high beta. The market message is mixed
on certain growth and quality metrics such as free cash flows
and ROE delta, but it likes companies with disciplined capex.
There is surprising bias for past winners in future winners –
implying stocks that have been doing well appear to be
continuing to do well
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