Tag Archives: script

Quant Investing: Improving The Value Of Shareholder Yield

Part of quant investing is always being on the look out for better metrics and systems that enhance performance. Today I want to look at a simple improvement to the value metric shareholder yield. I’ll look at this in the context of the quant index replication strategy I posted on here . First, lets look at shareholder yield in more detail. Recently there has been some interesting discussion on the level of buybacks, as a percentage of market cap, and how strong a conviction by management that represents. The idea being that the higher percentage of shares a company is buying back, the more conviction management has on the value of the company, and thus leading to better stock performance. The best analysis of the topic is here . The analysis going back to 1987 shows two key things; the largest buybacks (greater than 5% of market cap) are done at cheaper valuations and this leads to better performance over the following year. The large stock shareholder yield quant value strategy is a big improvement on the traditional indices. But maybe we can do better armed with this new information on the level of buybacks. I’ll take the original large stock SHY value strategy and compare it to a new version which only buys the large cap stocks sorted by SHY if the buyback yield is greater than 5%. We’ll go back to Jan 1999 and run the backtest through yesterday’s market close. First, the performance for the original large stock SHY strategy. Pretty darn good, 16.44% per year since 1999 with a Sharpe of 0.75 and Sortino of 1.06. Now lets add the filter that only buys stocks with a buyback yield greater than 5%. Even better as the research suggested. 17.59% per year since 1999 with a Sharpe of 0.80 and a Sortino of 1.17. That a 1.1% per year return enhancement with an improvement in risk adjusted returns as well for a very simple addition to an already powerful strategy. In short, screening for high conviction buybacks is a powerful addition to a large cap shareholder yield value strategy.

Staying Level-Headed In The Face Of Fed Uncertainty

By John P. Calamos, Sr. As we know, uncertainty about the Fed’s plans for raising short-term rates remains a key driver of market volatility. It’s understandable that investors are afraid to be in the markets and at the same time, afraid to be out. Whenever rates do rise (probably before the end of the year), there’s every reason to expect continued heightened equity market volatility. Even so, I view a more normal interest-rate environment as long-term positive – for the economy and for the equity market. Here are some points to keep in mind. Higher short-term rates should be viewed as an affirmation of U.S. economic health. The Fed has consistently expressed its commitment to a patient, globally-informed, data-driven approach. It will raise rates when it believes the U.S. economy is strong enough to continue growing without artificially low rates. The “path” of short-term rate increases is likely to be slow and shallow. In other words, I don’t believe we’ll see the Fed move to raise rates significantly and many times, provided that the overall economic landscape remains consistent with what we’ve seen over recent years – slow growth, low inflation. A more normal interest rate environment can support continued economic growth, particularly among smaller businesses. When interest rates are higher, lenders can earn more from borrowing activities. This should provide an increased incentive to lend to small businesses, especially against the supportive backdrop of continued economic growth. With increased access to capital, small businesses can grow and hire more people, contributing to better overall economic growth. Higher short-term rates don’t signal that we’ve entered a bear market. Earlier, I noted that markets are likely to remain volatile when rates rise, but that doesn’t mean there won’t be opportunities, especially for long-term investors who take an active approach. Historically, stocks tend to perform well during periods of economic growth (see point #1). Stocks have continued to advance after the onset of an interest rate increase, as Figure 1 shows. Moreover, as our Co-CIO David Kalis explained in his recent video interview , the prospects for U.S. growth stocks look especially attractive. (click to enlarge) Past performance is no guarantee of future results. Source: Cornerstone Macro. “Positioning For A Fed Tightening Cycle,” September 16, 2015. Convertible allocations may be particularly effective in this sort of environment. Because they have fixed income characteristics, convertibles may be able to mitigate the impact of short-term equity downside. And because they have equity characteristics, convertible securities generally demonstrate less vulnerability to interest rate increases than investment grade bonds. That means that when rates do rise, allocations to convertibles may prove more resilient. (Co-CIO Eli Pars outlines more of these potential benefits in this video interview .) It’s been observed time and again that markets hate uncertainty. That’s not likely to change. More importantly, what’s also not likely to change is this: volatility creates opportunity for those who can tune out the short-term noise and take a long-term view. Share this article with a colleague