Posts

Showing posts from August, 2017

Get an Edge by Clearing out the Junk

Image
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 c

Something to think about when considering market risk

Image
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

Image
Micro Caps, Factor Spreads, Structural Biases, and the Institutional Imperative, Factor Investor https://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

Disclaimer

Nothing in this blog constitutes investment advice - or advice in any other field. Neither the information, commentary or any opinion contained in this blog constitutes a solicitation or offer by Equitable Investors Pty Ltd (Equitable Investors) or its affiliates to buy or sell any securities or other financial instruments. Nor shall any such security be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.

The content of this blog should not be relied upon in making investment decisions.Any decisions based on information contained on this blog are the sole responsibility of the visitor. In exchange for using this blog, the visitor agree to indemnify Equitable Investors and hold Equitable Investors, its officers, directors, employees, affiliates, agents, licensors and suppliers harmless against any and all claims, losses, liability, costs and expenses (including but not limited to legal fees) arising from your use of this blog, from your violation of these Terms or from any decisions that the visitor makes based on such information.

This blog is for information purposes only and is not intended to be relied upon as a forecast, research or investment advice. The information on this blog does not constitute a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Although this material is based upon information that Equitable Investors considers reliable and endeavours to keep current, Equitable Investors does not assure that this material is accurate, current or complete, and it should not be relied upon as such. Any opinions expressed on this blog may change as subsequent conditions vary.

Equitable Investors does not warrant, either expressly or implied, the accuracy or completeness of the information, text, graphics, links or other items contained on this blog and does not warrant that the functions contained in this blog will be uninterrupted or error-free, that defects will be corrected, or that the blog will be free of viruses or other harmful components.Equitable Investors expressly disclaims all liability for errors and omissions in the materials on this blog and for the use or interpretation by others of information contained on the blog.