Bright Sun Asset Management Nigel Anderson Mattias Lundahl Jakob Midander So Sugiyama
Outline n n n Introduction Methodology Factors Results Dynamic weights model
Introduction n n A stock selection model for large cap, US equities Limit to three factors Long and short positions Combine historic data and forecast results
Methodology n n n Investment Universe: US Equities mktcap + US$ 2. 5 bn 875 companies January 2000 to December 2005 Build quintiles based on factors monthly ptf returns Score factors based on performance new quintiles Long top / short bottom quintile
Factors n n n Earnings Yield Price to Book EPS Forecast (IBES Consensus)
Results – Earnings Yield n n Outperformance 5 (6) years (Eq. W ptf) We assign: Ear. Y(1) +4 Ear. Y(5) -4
Results – Price to Book n n Outperformance 6 (6) years (Eq. W ptf) We assign: P/B(1) +-0 P/B(5) -2
Results – EPS forecast n n Outperformance 5 (6) years (Eq. W ptf) We assign: EPS(1) +-0 EPS(5) -2
Results – Combined Model n n Outperformance 5 (6) years (Eq. W ptf) Consistency in result (apart from Y 2003) better than any single factor
Dynamic Weights Model n n High expected growth: penalize #5 portfolio less Low expected growth: favor #1 portfolio less Yield Curve Shape is based on US Govt. 10 y – 1 y (1 month lagged)
Result – Dynamic Weights Model n n Slightly better performance both buy and sell portfolio Still has problem to forecast in 2003
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