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Equity Investment Strategies - More Science than Art?

  • Posted by: ,  Chief Executive
  • 15 February 2018
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Equity Investment Strategies of All Shapes and Sizes

Previously, a rising tide lifted all boats. But with increasing bond yields, tightening monetary policy, and the potential onset of volatility, is the stage set for declining correlations and a new era of active (or even scientific) equity investing? 

Get savvy on the science of equity investment strategies, as BlackRock, Robeco, and SSGA discuss the benefits of smart beta/factor investing, Intech suggests frequent rebalancing to capture excess returns, QMA tells you how to short properly, and Barings discusses why the EM equity rally may not be over.

Savvy Investor

Enhance your skill: how active managers are using factor strategies (BlackRock, 2017)
(For compliance reasons, this paper is only accessible in the USA)
If you're considering ways to add value to existing equity processes, this BlackRock paper presents three case studies showing how exposure to risk factors can potentially reduce risk, increase diversification, and improve returns.

Strong hands needed to unlock the potential of factor investing (Robeco, Dec 2017)
When employing factor-related equity strategies, patient and long-term investors with consistent style exposures (who avoid market timing issues) are more likely to achieve better results.

A New Dawn for Emerging Markets Equities (Barings, Feb 2018)
Barings' portfolio managers remain optimistic about the outlook for EM equities. Having enjoyed a rebound after several years of underperformance, the authors list several reasons why positive returns will likely persist.

Equity Valuation: Science, Art, or Craft? (CFA Institute Research Foundation, 2017)
Well-formulated nonconsensus beliefs are essential for equity portfolio management. The CFA Institute Research Foundation interviews analysts, PMs, and CIOs to find out more about conceptualizing these ideas.

How to Harness Volatility to Unlock Alpha (Intech Investments)
(For compliance reasons, this paper is only accessible in the selected geographies)
Regularly rebalancing portfolios can lead to increased capture of the excess growth rate and a higher compound return for long-term investors. Intech discusses the disparity between this approach and passive indexing.

Does Past Performance Matter? (S&P Dow Jones Indices, Jan 2018)
With top quartile funds frequently losing their position due to underperformance in future years, should past performance (and other metrics) be used to select funds?

Why China A-Shares, Why Now? (William Blair, 2018)
A new opportunity is presenting itself for investment in China A-Shares. William Blair discusses Chinese equity markets, their prior neglect by institutional investors, and the present opportunity at hand.

Complete Guide to Smart Beta: Beyond Active and Passive (SSGA)
SSGA's Complete Guide to Smart Beta covers the research behind all five main factor exposures, the potential benefits to investors, and the implementation of these factors in practice.

The Long and the Short of It: The Quant Shorting Advantage (QMA)
QMA describes the three predominant categories of equity products that are shorting-enabled (active extension, equity market neutral, and equity long-short products) and explores the potential to find alpha via these strategies.

Outperformance in Equal-Weight Indices (S&P Dow Jones Indices, Jan 2018)
This paper examines equal-weight indices and the sources of their outperformance from several perspectives, such as sector and factor-based analysis, also providing some applications for portfolio management.

Small Wonders: Capturing the Potential of U.S. SMID-Cap Stocks (AB, 2017)
(For compliance reasons, this paper is only accessible in North America and South America)
AB describes the benefits of investing in a portfolio comprised of both small-cap and mid-cap US stocks, and how active managers can derive superior risk-adjusted returns from high-reward small caps and stable mid-caps.

Sharpening the Arithmetic of Active Management (Financial Analysts Journal, 2018)
Lasse Heje Pedersen of AQR Capital Management challenges Sharpe’s famous equality on active and passive investing due to the necessity to regularly trade - brought about by share issuances and index rebalancing.

Should investors look to active managers towards the end of the cycle? (Fidelity International)
(For compliance reasons, this paper is only accessible in the UK and Europe)
Comparatively, active managers have not done well recently. But as correlations decline and the economic cycle perhaps turns a new corner, their performance could significantly improve.

Do Earnings Revisions Matter in Asia (S&P Dow Jones Indices, Dec 2017)
Earnings revisions (or earnings surprise) strategies are commonly used as an indicator of future price performance. In this paper, the authors examine the efficacy of such strategies across seven Asian equity markets.

The Premature Demonization of Stock Repurchases (AQR Capital Management, 2017)
The authors discuss stock repurchases, recent negative press commentary, and new ways to consider repurchase activity that show it does not artificially create EPS growth or stifle investment activity.

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