Nuances of Stock Selection

Security Selection in 2020: A Nuanced Solution

2019 was a great year for global stock markets, but the good times won't last forever. In down markets as well as flat ones, security selection and portfolio construction become increasingly important. There are many nuances involved in the process of stock selection, so this list of papers approaches the topic from a variety of angles.

Do bottom-up approaches neglect alpha that could be derived from incorporating a top-down framework?  How troublesome is home bias within global portfolios? And is value investing dead, or is it about to make a comeback?

Building Global Equity Portfolios: Capturing sources of return (QMA, 2020)

QMA discusses the benefits of a top-down framework for security selection and portfolio construction that combines global industry and local country exposures.

Does Past Performance Matter? The Persistence Scorecard (S&P Dow Jones Indices, 2019)

To what extent does past performance matter when selecting funds with a particular asset class or style focus? This regular report from S&P Dow Jones Indices shows how difficult it is for active managers to consistently produce alpha.

Behavioral Finance: The Second Generation (CFA Institute Research Foundation, 2019)

Behavioral finance may be more about responding to people's normal wants (financial security, providing for family, adhering to values) than learning how to respond to or prevent 'irrational' behavior.

A Case for Growth Stocks (Baillie Gifford, 2019)

In a world where many analysts are calling for a resurgence in value stocks this paper presents a contrarian view - the case for growth investors to continue to enjoy more of the same.

Equity Portfolio Construction: Filling the Gap Between Alpha and Beta (Neuberger Berman, 2019)

In evaluating the space between alpha and beta, Neuberger Berman looks at five different risk premia in developed and emerging markets, then combines an indexing approach with put-option writing to boost risk-adjusted returns.

Podcast: The P/E Ratio - A User’s Manual (Epoch Investment Partners, 2019)

This podcast from Epoch Investment Partners deconstructs the P/E ratio while exploring information that can be gleaned from DCF analysis.

You Can't Always Trend When You Want (2019)

The authors present a unique discussion of trend-following performance, disecting the drivers of this performance into three parts.

Thematic equities: their use in a diversified portfolio (Pictet AM blog, 2019)

Pictet looks at an allocation to thematic equities and the various roles that this type of allocation may serve when constructing institutional portfolios.

130/30 Long-Short Equity Strategies (Meketa, 2020)

Meketa explains the ins and outs of 130/30 (long-short) equity strategies, including their risk/return characteristics, implementation issues, and why they may be of interest to institutional investors.

Reports of Value's Death May Be Greatly Exaggerated (Research Affiliates, 2019)

Research Affiliates decomposes the performance difference between value and growth stocks into three components, showing that the root cause for the difference is a valuation spread (and value stocks remain relatively cheap).

Machine Learning and Investing, part 2: Clustering (OSAM, 2019)

In part 2 of a series of papers on machine learning, Kevin Zatloukal of O'Shaughnessy Asset Management explains how cluster analysis can be used to build non-linear models.

Price Momentum or Information Momentum? (QMA, 2019)

Information momentum may have more predictive power than price momentum when it comes to determining future returns for equity securities.

Appraising home bias exposure: Eurozone (FTSE Russell, 2020)

International investors should be mindful of home bias. As European markets continue to underperform their international counterparts, home bias has proven especially costly for large European pension funds.

International Equities: Diversification and Its Discontents (Enterprising Investor blog, 2019)

International diversification may benefit US investors less than it did in the past, due to changes in the correlation between US and international stocks.