Stock Selection and Analysis - Articles & White Papers
Research and papers relating to stock selection and security analysis. This section includes reports and articles which help fund managers and investment analysts examine their stock selection process. Popular themes in this category include papers on company valuation methods; how to assess equity valuation and identify the best approaches to stock screening; how to use price/book ratio, PE multiples, PEG ratios, equity cash flow, free cash flow, APV (Adjusted Present Value), economic profit, EVA, dividend discount models, and other metrics. Papers which help equity fund managers use factor-based investing models to build a better beta (smart beta approaches using risk factors to achieve superior returns) are also well read. Other surveys and white papers in this section look at the case for active equity managers, the characteristics (hallmarks) of successful equity managers, how to use big data in stock selection, active versus passive strategies, momentum strategies, trading rules, pairwise correlations and stock volatility.
Thirty years ago this year, Michael J. Mauboussin started on Wall Street. It goes without saying that he has seen dramatic events and change during that time. Equity market indices are roughly 10 times higher today than they were in 1986. And of the 10 biggest companies by market cap then, only AT&T, Exxon Mobil and GE remain in that league today. In this piece, he shares his ...
The “Monkey portfolio” proposition is that smart beta strategies can be deployed naively, with the assurance that all such strategies will add value. EDHEC's research suggests otherwise, with many smart beta strategies having exposure to other factors. The authors warn that care is needed to avoid over-extrapolating the implications of a particular test ...
Factor investing is as old as the hills. Yet it has only recently become a widespread practice. What is behind this sudden change in the investment management industry? What do analysts at firms that engage in factor investing do? What results might investors using these techniques expect? Here is a hugely important read to explore these questions.
This report by Citi examines some of the newest concepts across sectors - e.g. big data, robotics, online retailing, etc - and identifies new products which could potentially disrupt the marketplace.
Authored by Cliff Asness and others from AQR Capital, this paper examines the "myths" surrounding momentum investing, using results from a variety of academic studies. The paper aims to clarify the facts with regard to the efficacy of trend-following strategies and to document the practical value of momentum within the investment process.
Typically, institutional investors around the world pursue one of four investment goals: absolute return, liability-driven investment, total return or principal protection. Generally, they choose from four different investment approaches: static tilts, traditional active management, market-capitalization exposures and alternative investments. Given the aforementioned potential ...
This 97-page report has been produced by Credit Suisse. It analyses the key trends affecting long-term investing, such as geopolitics, demographic shifts, and rapid technology change. These movements provide a tangible link between today’s major developments and portfolios' risk/return profiles in the long run.
The iSTOXX Europe Market Neutral Single and Multi-Factor Indices developed by STOXX in collaboration with Alpha Centauri offers investors a unique and very innovative way to target and capture premia of six well-documented sources of systematic risk: value, carry, momentum, size, low risk as well as quality.
Asset owners face a challenge in determining how the factor allocation fits into the overall equity program: How does the factor allocation relate to the existing roster of active managers? This paper uses a risk budgeting framework to investigate how active mandates and factor allocations can be combined. Risk budgeting connects the manager selection process with the factor ...
In a world where alpha can seem scarce, active small-cap managers continue to outperform their benchmarks in an impressive way. But why? Investors have a general sense small caps are riskier and less efficient, but how these characteristics contribute to more alpha opportunities remains unclear. At QMA, we think it’s critical to understand the sources of returns so that you ...
This paper appeared in CFA Institute's Financial Analysts Journal. Combining long-only-constrained factor subportfolios is generally not a mean–variance-efficient way to capture expected factor returns. For example, a combination of four fully invested factor subportfolios—low beta, small size, value, and momentum—captures less than half ...
QMA's paper describes how a bottom-up, quantitative investment process may be well suited to deliver consistent positive excess returns in international equity markets by focusing on two key elements of the investment process: a) a stock selection model that captures the long-term drivers of future returns via firm fundamentals, and b) the use of rankings generated by that ...
This paper analyses what academic research has to say on equity factors. Our objective is to understand which lessons we can learn from such research in terms of designing and evaluating factor indices. When analysing academic publications on equity factor investing, five important lessons emerge, which provide useful perspective on practical questions about factor indices. This ...
This report by S&P Dow Jones takes an in-depth look at how indices are changing the face of investing. Specifically, it examines whether passive investing can grow too large and what the possible implications of this are for active management.
This EDHEC paper examines the importance of robustness for smart beta strategies, explaining how a strategy being "relatively robust" differs from "absolute robustness". The authors describe how the robustness of smart beta performance can be assessed and quantified, describing various approaches, which may be used to improve the robustness of smart beta ...
This paper by Segal Rogerscasey examines the ongoing debate between active and passive management, highlighting the pros and cons of both strategies. How can institutional investors calculate the probability that active or passive strategies will outperform, and how do they decide which approach is best for their situation?
This paper examines the increasing prominence of factors and factor investing in institutional portfolios. The paper is split into four parts: Introduction; The Factor Landscape; Capital Allocation and Investment Strategies; The Future of Factor Investing. The report is based on a survey of 200 institutional investors from around the world.
In this paper, Rob Arnott, 'Godfather of Smart Beta', warns investors to recognise that most of the “alpha” produced by smart beta is created by rising valuations. A smart beta crash, he argues, will be the result of valuation norms returning to the mean.
Published in the Journal of Index Investing, this article argues that the academic literature is littered with a "zoo" of apparently smart risk factors, which in practice will go unrewarded, being the result of spurious and unwarranted data-mining, The authors suggest a methodology whereby robust, investable, risk factors can be identified, which make intuitive sense and ...
How can investors select active equity managers to maximize their odds for success? While there are no silver bullets in active equity manager selection, some managers have generated attractive long-term performance that exceeds both their benchmarks and management fees. This 20 page document from Kevin Ely of Cambridge Associates highlights key characteristics to look ...
