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Showing posts from August, 2017

Get an Edge by Clearing out the Junk

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While the newly-launched Equitable Investors Dragonfly Fund will typically be focused on micro to mid caps, its investment universe is not defined directly by company size. Equitable Investors seeks out attractive investment characteristics and market inefficiencies that tend to be more prominent - but not exclusively - among smaller firms.We've been preparing a paper running through some of the quantitative work researchers have done on the factors and characteristics that help us focus on the listed businesses most worthy of a closer look. "Quality" is one focal point. The story of the small company premium is well told - and challenged from time-to-time. But a more robust version of the small company premium story comes from leading US quantitative investment firm AQR (headed by Cliff Asness), which found in its report, "Size Matters, if You Control Your Junk" (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2553889), that after culling low quality com…

Something to think about when considering market risk

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WSJ reproduced this chart from BMI Research, using historical data (Schiller PEs and drawdowns) to provide context around current valuations and drawdowns (how low the market can decline from peak to subsequent trough).

If you're seeking an investment edge, start small

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Micro Caps, Factor Spreads, Structural Biases, and the Institutional Imperative, Factor Investorhttps://www.factorinvestor.com/blog/micro-caps-factor-spreads-structural-biases-and-the-institutional-imperative
July 29, 2017

Ehren Stanhope, a principal with quantitative investment firm O'Shaughnessy Asset Management in the US, has crunched some numbers to highlight that "factor investing is more effective in micro than any other cap range".  See below his table on the performance of factors across the market cap spectrum. His point - instead of starting with large caps and working backwards in search of

excess returns, start in the most bountiful segment of the market and work up: "Investors should start building allocations where competition is low and alpha is less scarce—micro cap. "

A very successful deployment of a "constructive" approach to investment

The Winner’s Picks, Barron's
http://www.barrons.com/articles/the-winners-picks-1497666505
June 16, 2017

Alantra Asset Management's EQMC Europe Development Capital fund has averaged more than 20% a year, net of fees, since its inception in 2010. On an annualized three-year basis through the end of 2016, it gained more than 26% a year, putting it at the top of Barron’s Penta’s 2017 ranking of Top 100 Hedge Funds. The managers of the fund say most of their returns are driven by good stock-picking, but they also employ what they call “friendly active investing” to nudge core holdings to improve corporate governance, operations, capital allocation, and strategic decisions. Most company chiefs—typically first-time CEOs of public companies—welcome the managers’ guidance. When they don’t, Llanza and de Juan keep their position small, or move on: "We tend to be very constructive. Our strategy is to see how we can create value and help managers. We don’t see ourselves as a hedge fund.…

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