Tag Archives: investing

Achieving 16.7% Returns With The Value Score

Summary What is the OSV Action Score? What is the OSV Value Score? How was the Value Score created? The Quality Score produces 16.8% CAGR in the tests that I’ve performed for the upcoming “Action Score” that I’m implementing into Old School Value. Next is the Value Score. Here is the full table of results again. stocks are bought at the beginning of the year held for one year rebalanced after 1 year commissions and fees are not included into these results If you followed this strategy, the 16.74% is the max return. After fees, it likely comes down to 13-14% range annualized. Here’s How I Created the Value Score When you create a ranking system (or even a screener) the higher the number of criteria, the worse the performance becomes. When picking individual stocks, making sure a stock passes lots of checks is a good strategy because you allocate based on your conviction. However, when you try to employ any sort of quantitative strategy, it is not a good idea to list 20 different criteria that must be passed. Of all the tests I’ve performed, a strategy with lots of checks consistently lose to the market by a wide margin. I mention this because people ask me whether I’ve tried combining several of the best performing value screeners on display. I have. And the results are pathetic. It severely handcuffs the number of stocks that pass and the screen ultimately fails. When you pick stocks individually, you have to be precise and picky. For anything quant based, it needs to be looser as you are buying a bunch. As I mentioned in the Quality Score article, instead of blindly coming up with metrics for each Q, V and G, I already had a list of metrics for each methodology based on previous research papers and proven results. Then the theory was tested and confirmed via backtesting. In its purest form, the Value Score is based on the following 3 factors: P/FCF – best range is less than P/FCF of 10 EV/EBIT – best range is less than 11 P/B ratio – preference for P/B to be less than 3 Here’s the initial backtest to confirm the theory for a 20 stock holding portfolio. Eliminating OTC stocks, financials, energy, mining or utilities and the results continue the outperformance. Great. Backtest works with the selected metrics. It now comes down to how well the same idea can be applied when creating a ranked database. To further clean up the results, additional weightings were applied to each of the above ratios. Then all the stocks are further ranked with the Piotroski score again to eliminate low quality stocks. P/FCF has the biggest impact on the results and receives the highest weighting EV/EBIT does a great job of identifying cheap stocks and receives the second highest weighting P/B acts as a “cleaning” filter to remove stocks where you overpay for assets. Also a way to remove bad stocks you wouldn’t want to own no matter how cheap it looks The Piotroski score is assigned a fairly high weighting so that the list removes “lotto” stocks and potential black swan stocks The Value Rank Results Even if I did follow this strategy, it’s not an easy one to follow. There is a LOT of volatility. If you can’t stomach big moves and have faith in the process, you are doomed. If you focus too much on beating the market each year instead of an absolute long term return, you are doomed. When buying and holding the top 20 ranked Value stocks each year for the entire universe of stocks, the scoring system achieves 16.74% CAGR. If you start with $10k, you’d end up with $138k after 16.5 years. Eliminate OTC, financials, miners, utilities and energy again and the results are shockingly great at 19.4% CAGR. $10k becomes $203.6K after 16.5 years. But what I don’t like about the Value Rank on its own is the lack of downside protection in 2008. Cheap stocks and growth stocks get hammered the most during severe bear years. But a -40% return is a huge blow and a can easily shatter your faith in the system and process. Something to think about. Top 20 Value Stocks from 2015 Here is the list of top 20 stocks that make up the Value Score portfolio starting from Jan 1, 2015 so that you get a sense of what type of stocks the Value Rating is selecting. Disclosure No positions in any stocks mentioned.

Market Neutral Funds: Best And Worst Of November

By DailyAlts Staff (click to enlarge) Market-neutral funds balance long and short holdings, generally in pursuit of something close to a 0% net-long exposure. This allows investment managers to neutralize beta and focus on generating alpha – or at least, that’s the idea. In November, the top three market-neutral mutual funds generated returns ranging from +0.94% to +3.52%, while the category’s three laggards returned between -2.53% and -3.19%. In this month’s review, we look beyond November’s performance and also consider the composition of each of the featured funds’ three-year standard deviation and Sharpe ratio. (click to enlarge) November’s Top Performers The top performing market-neutral mutual funds in November were: (click to enlarge) The QuantShares US Market Neutral Momentum ETF fund led the pack last month with its decidedly strong returns of +3.52%. Year to date through November 30, the fund had spectacular gains of 20.43%, but its annualized three-year return through that date stood at a lower +3.80%! Overall, the QuantShares US Market Neutral Momentum Fund’s three-year Sharpe ratio stood at 0.31. The Hussman Strategic International Fund’s +1.37% returns in November weren’t quite as impressive, but were still strongly positive for the month. However, the fund’s three-year return of -1.91% through November 30 is less impressive. On a risk-adjusted basis, the Hussman fund’s three-year Sharpe ratio stood at a dismal -0.28, as of November 30. Perhaps the best looking of the three funds was November’s third-best performer, the Turner Titan II Fund, which posted a 0.94% gain for the month. Its three-year annualized return of 4.69% is much stronger than its peers’, and the three-year Sharpe ratio of 0.82 is by far the best of any market-neutral fund reviewed this month. November’s Worst Performers The worst performing market-neutral mutual funds in November included: (click to enlarge) The Whitebox fund was the month’s worst, at -3.19%. For the first eleven months of 2015, the fund lost 6.56%, but its three-year annualized returns were in the black at +1.44%. What’s more, the fund’s Sharpe ratio of 0.27 was not only better than either of November’s other worst performing market-neutral funds, but among the top three of the six funds covered this month. The QuantShares US Market Neutral Value Fund lost 2.98% in November, bringing its year-to-date losses to 10.03% as of November 30. The fact that QuantShares has found itself on both the Best and the Worst lists for the month is a clear indication that momentum exposure worked in November (and the year), and value did not. On a three-year basis, the fund was in the black, with annualized returns of +0.30%. Finally, the Hussman Strategic Growth Fund was November’s third-worst performer, also earning Hussman the distinction of being in both the penthouse and the doghouse for the month. Of the three biggest losers from last month, the Hussman fund has the worst looking long-term results: a three-year annualized return of -8.88%. Its three-year Sharpe ratio of -1.38 was also easily the worst of the bunch. Past Performance does not necessarily predict future results. Meili Zeng and Jason Seagraves contributed to this article.

A Comprehensive Guide To Russia ETFs

After struggling with falling energy prices and western sanctions following the Ukraine crisis, Russia seems to be coming back on track. The Russian benchmark stock index, the Micex, recently touched its seven-year nadir while major ETFs tracking the Russian equity market have been reflecting gains. Much of the recovery in the country is linked to the oil and gas industry as the state derives about half of its revenues from the industry and 25% of its GDP is based on it. Oil prices have been recovering on rising geo-political tensions across the world ranging from the situation in Syria and Northern Iraq to the recent downing of a Russian jet by Turkey. International benchmark Brent Crude reached its two-week high of above $46 recently, a rebound from the six-year low of roughly $43 in August. The impact of the Syrian crisis may look short-lived but that’s not the end of the story. Recently, Saudi oil minister indicated at a possible cooperation between OPEC and non-OPEC nations to deal with the over-a-year-long production turf war to stabilize the oil market at their meeting on December 4. Stabilization in Russian ruble is another reason for the inflow in Russian ETFs. A weak ruble in the past has been the major factor for investors’ distaste for these ETFs as they lower dollar-denominated returns. Ruble has rebounded about 34% from its year-to-date low of around 50 to around 65 against the greenback currently. In fact, Goldman Sachs (NYSE: GS ) expects ruble to be one of the good performing currencies in 2016 along with the U.S. dollar and the Mexican peso. Moreover, increasing prospects of cooperation between Russia and the west over the war against the extremist group Islamic State have been boosting investor confidence. This led to the possibility of the U.S. lifting economic sanctions imposed on Russia following the Ukraine crisis. Recently, the International Monetary Fund (IMF) released projections that indicated stabilization in the Russian economy in 2016. IMF expects the economy to contract only 0.6% next year following a 3.8% squeeze in 2015, given the impact of lower oil prices. It further predicted inflation to fall to 12.7% at the end of this year and will continue to do so in 2016 from the current rate of 15.7%. It also hinted at improvements in the trading situation in the country despite its high dependence on oil exports. Below we discuss three ETFs tracking the Russian equity market that posted double-digit gains in the year-to-date time frame (as of November 25, 2015). Investors should closely monitor the movement of these ETFs in the days ahead, particularly following the OPEC meeting next week. Market Vectors Russia ETF (NYSEARCA: RSX ) This is the most popular ETF with an AUM of nearly $2 billion. The fund tracks the Market Vectors Russia Index with the highest exposure to the energy sector (42.9%), followed by materials (17.8%) and financials (13.9%). It has a basket of 37 stocks with top three holdings including Sberbank of Russian Federation, Gazprom ( OTCQX:GZPFY ) and Lukoil ( OTCPK:LUKOY ). The ETF trades in a solid volume of 11.9 million shares per day and charges 63 bps in annual fees. It added 19.7% in the year-to-date time frame and has a Zacks ETF Rank #4 (Sell) with a High risk outlook. iShares MSCI Russia Capped (NYSEARCA: ERUS ) This ETF tracks the MSCI Russia 25/50 Index, measuring the performance of equity securities in the top 85% by market capitalization of equity securities listed on stock exchanges in Russia. The ETF with a basket of 27 stocks is also heavily weighted to energy sector (53.4%) followed by financials (18%) and materials (9.8%). Gazprom, Pjsc Gazprom and Sberbank of Russia are the top three holdings in the fund. ERUS has an AUM of $240 million and exchanges roughly 411,000 shares in hand per day. It charges 62 bps in annual fees and returned around 16.8% so far this year. It has a Zacks ETF Rank #4 with a High risk outlook. SPDR S&P Russia ETF (NYSEARCA: RBL ) RBL follows the S&P Russia Capped BMI Index with a basket of 43 stocks. It also gives the highest preference to the energy sector (47.1%) followed by financials (14.8%) and materials (11.3%). Gazprom, Lukoil and Sberbank occupy the top three spots in the fund. The product has amassed around $26 million in assets and trades in a paltry volume of roughly 9,300 shares per day. It charges 59 bps in investor fees and gained 17.8% in the year-to-date period. It carries a Zacks ETF Rank #4 with a High risk outlook. Original Post