Combining the Best Stock Selection Factors by Patrick O'Shaughnessy at QuantCon 2016
•
18 j'aime•3,867 vues
Patrick will explore how to combine the value factor with other stock selection factors to build a superior stock selection strategy. He will discuss unique ways of using momentum, share buybacks, and quality factors to improve on a simple value screen. He will discuss portfolio concentration, rebalancing, and risk management. He will also explain why the best versions of these strategies are only possible for smaller firms and investors.
Recommandé
Recommandé
Contenu connexe
Tendances
Tendances (20)
En vedette
En vedette (20)
Similaire à Combining the Best Stock Selection Factors by Patrick O'Shaughnessy at QuantCon 2016
Similaire à Combining the Best Stock Selection Factors by Patrick O'Shaughnessy at QuantCon 2016 (20)
Plus de Quantopian
Plus de Quantopian (18)
Dernier
Dernier (20)
Combining the Best Stock Selection Factors by Patrick O'Shaughnessy at QuantCon 2016
- 4. osamresearch.com APRIL-2016 4 “The trend has vanished, killed by its discovery.” B. Mandelbrot
- 5. osam.com 1963–1992 1993–2015 The Deterioration of Price-to-Book 5 ▬ Price-to-Book ▬ EBITDA/Enterprise Value ▬ Price-to-Earnings ▬ Price-to-Sales 1 10 100 1963 1970 1977 1984 1991 0 1,000 10,000 Cumulative Excess Return (%) -5 0 5 10 15 20 1992 1995 1998 2001 2004 2007 2010 2013 Source: Patrick O’Shaughnessy, CFA; “Alpha or Assets? — Factor Alpha vs. Smart Beta” (Figures 3–4) http://osam.com/pdf/Commentary_AlphaOrAssets_FactorAlphaVersusSmartBeta_April-2016.pdf Past performance is no guarantee of future results. Please see important information titled “General Legal Disclosures & Hypothetical and/or Backtested Results Disclaimer” at the end of this presentation.
- 7. osamresearch.com APRIL-2016 Issuing Capital -3.8% -2.3% -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% Allocating Capital Capital Allocation Decisions Improve Shareholder Value 7 Annualized Excess Return vs. Large Stocks Diluters1 no dividends issuing shares Debt Issuers 1 -3.0% -2.3% 0.9% 3.1% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% Returning Capital to Shareholders 1 Reducing Debt 1 Acquisition 2 Expansion 1 1 1964–2014 (Large Stocks Universe: 10.5%) 2 1989–2014 (Large Stocks Universe: 10.1%) Note: Diluters represented by the quintile of stocks that are issuing shares and/or paying no dividends. Debt Issuers represented by the quintile of stocks with the largest year-over-year change in debt outstanding. Returning Capital to Shareholders represented by the quintile of stocks with the highest combination of dividends and buybacks. Reducing Debt represented by quintile of stocks by year over year debt reduction. Acquisition represented by quintile of stocks with highest year over year growth in goodwill. Expansion represented by quintile of stocks with highest year over year growth in CapEx. Past performance is no guarantee of future results. Please see important information titled “General Legal Disclosures & Hypothetical and/or Backtested Results Disclaimer” at the end of this presentation.
- 8. osamresearch.com APRIL-2016 The Power of Share Repurchases (U.S. Large Stocks, 12/31/1986–6/30/2015) Source: O’Shaughnessy, Patrick. “High Conviction Buybacks” (Figure 1, http://osam.com/pdf/Commentary_HighConvictionBuybacks.pdf) — Compustat, IDC, OSAM calculations $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 Total Net Buybacks Grouped by Level of Conviction Buybacks 10%+ (highest conviction) ■ Buybacks 5–10% (higher conviction) ■ Buybacks 0–5% (low conviction) Past performance is no guarantee of future results. Please see important information titled “General Legal Disclosures & Hypothetical and/or Backtested Results Disclaimer” at the end of this presentation. 8
- 9. osamresearch.com APRIL-2016 9 Dividend Yield 4%+ (highest yield) ■ Dividend Yield 2-4% (high yield) ■ Dividend Yield 0–2% (low yield)
- 11. osamresearch.com APRIL-2016 All Large U.S. Stocks Net Share Issuers Low Conviction Buybacks (0–5%) High Conviction Buybacks (5%+) Base Rates vs. U.S. Large Stocks Base rates are a batting average for how often a strategy beats its benchmark over certain rolling time periods. 1-Year — 35% 50% 70% 3-Year — 28% 66% 80% 5-Year — 18% 61% 86% 10-Year — 1% 77% 98% The Power of Share Repurchases 11 (U.S. Large Stocks Universe, 1987–2014) Source: O’Shaughnessy, Patrick. “High Conviction Buybacks” (Tables 1–2, http://osam.com/pdf/Commentary_HighConvictionBuybacks.pdf) — Compustat, IDC, OSAM calculations 11.2% 10.1% 12.2% 15.9% Sharpe Ratio: 0.38 Annualized Return 0.30 0.50 0.67 Past performance is no guarantee of future results. Please see important information titled “General Legal Disclosures & Hypothetical and/or Backtested Results Disclaimer” at the end of this presentation.
- 12. osamresearch.com APRIL-2016 Rolling 10-Year Excess Return vs. Large Stocks* Annualized Return* -3% 0% 3% 6% 9% 12% 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Value Composite — Individual Factors Move In and Out of Favor 12 ▬ EBITDA-to-Enterprise Value ▬ Price-to-Earnings ▬ Free Cash Flow-to-Enterprise Value ▬ Shareholder Yield ▬ Price-to-Sales ▬ Value Composite * Source: Compustat Database, Large Stocks (1964–2014) Highest Decile Value Composite 15.5% Shareholder Yield 14.5% EBITDA-to- Enterprise Value 14.4% Free Cash Flow- to- Enterprise Value 14.2% Price-to- Earnings 14.0% Price-to- Sales 12.6% Large Stocks 10.5% The Value Composite outperforms its individual components in 82% of rolling 10-year periods: Past performance is no guarantee of future results. Please see important information titled “General Legal Disclosures & Hypothetical and/or Backtested Results Disclaimer” at the end of this presentation.
- 19. osamresearch.com APRIL-2016 Shareholder Yield — Avoid Companies Repurchasing at Expensive Valuations 19 Using valuation to enhance Shareholder Yield: * Large Stocks terciles, 1964–2014 (Large Stocks Universe: 10.5%) Strong Shareholder Yield* OSAMValue* 1 13.7% 2 10.2% 3 9.0% 4.7% return gap high yield and undervalued high yield and expensive Past performance is no guarantee of future results. Please see important information titled “General Legal Disclosures & Hypothetical and/or Backtested Results Disclaimer” at the end of this presentation.
- 20. osamresearch.com APRIL-2016 Six Factor Themes Make Up Each Stock’s Factor Profile and Drive Returns 20Past performance is no guarantee of future results. Please see important information titled “General Legal Disclosures & Hypothetical and/or Backtested Results Disclaimer” at the end of this presentation. Value Stocks trading at large discounts to current sales, earnings, EBITDA and Free Cash Flow Momentum Stocks with impressive and stable recent total returns Financial Strength Stocks which use debt responsibly, and aren’t too reliant on outside financing Earnings Growth Stocks whose profitability is high and trending up Earnings Quality Stocks with strong cash flows and conservative accounting Shareholder Yield Stocks returning high amounts of cash to shareholders through dividends and buybacks
- 24. osamresearch.com APRIL-2016 Measuring the Factor Advantage: Smart Factor Alpha vs. Smart Beta 24Past performance is no guarantee of future results. Please see important information titled “General Legal Disclosures & Hypothetical and/or Backtested Results Disclaimer” at the end of this presentation. Source: Patrick O’Shaughnessy, CFA; “Alpha or Assets? — Factor Alpha vs. Smart Beta” (Figure 5) http://osam.com/pdf/Commentary_AlphaOrAssets_FactorAlphaVersusSmartBeta_April-2016.pdf 0 1 2 3 4 5 0 1 2 3 4 5 QUALITY SHAREHOLDER YIELD (As of 2/29/16) highest lowest highestlowest average 75% of a fund's holdings Russell Style: 1000® (IWB) 1000® Value (IWD) Fundamental-weighted: PowerShares RAFI US 1000 (PRF) (quintiles) Factor Alpha: Concentrated Value, Quality + Shareholder Yield
- 25. osamresearch.com APRIL-2016 25 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 Quality Shareholder Yield S&P 500 (SPY)
- 26. osamresearch.com APRIL-2016 26 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 Quality Shareholder Yield Russell 1000 Value (IWD)
- 27. osamresearch.com APRIL-2016 27 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 Quality Shareholder Yield Fundamental Index (PRF)
- 28. osamresearch.com APRIL-2016 28 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 Quality Shareholder Yield USA Minimum Volatility (USMV)
- 29. osamresearch.com APRIL-2016 29 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 Quality Shareholder Yield "Factor Alpha" Portfolio
- 30. osamresearch.com APRIL-2016 A Consistent Factor Advantage Past performance is no guarantee of future results. Please see important information titled “General Legal Disclosures & Hypothetical and/or Backtested Results Disclaimer” at the end of this presentation. Portfolio Russell 1000® Value Index YIELD Dividend Yield (%)1 2.5 2.6 Buyback Yield (%) 6.6 -0.5 Shareholder Yield 9.2 2.1 VALUE Price-to-Earnings Ratio 12.9 16.4 Price-to-Sales Ratio 1.0 1.5 Enterprise Value/EBITDA 6.8 9.2 Enterprise Value/Free Cash Flow 22.5 44.4 QUALITY EARNINGS QUALITY Total Accruals/Total Assets (%) -3.9 -4.0 Depreciation/CapEx (%) 117.3 129.6 FINANCIAL STRENGTH External Financing (%) -8.7 -1.3 Debt/Equity 111.3 103.8 EARNINGS GROWTH 1-Year Historical EPS Growth (%) 4.3 0.3 Return on Equity (%) 21.9 11.4 30
- 31. osamresearch.com APRIL-2016 Bottom Line: Factor Alpha is Better than Smart Beta 31Past performance is no guarantee of future results. Please see important information titled “General Legal Disclosures & Hypothetical and/or Backtested Results Disclaimer” at the end of this presentation. 263% 240% 147% [VALUE] 143% 109% -50% 0% 50% 100% 150% 200% 250% 300% 350% Smart Beta ü Own everything ü Tilt towards factor(s) ü Market cap-weight Factor Alpha ü Eliminate lowest stocks ü Select only highest-scoring ü Use multiple factors ü Conviction-weight
- 32. osamresearch.com APRIL-2016 General Legal Disclosures & Hypothetical and/or Backtested Results Disclaimer Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by O’Shaughnessy Asset Management, LLC), or any non-investment related content, made reference to directly or indirectly in this piece will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this piece serves as the receipt of, or as a substitute for, personalized investment advice from O’Shaughnessy Asset Management, LLC. Any individual account performance information reflects the reinvestment of dividends (to the extent applicable), and is net of applicable transaction fees, O’Shaughnessy Asset Management, LLC’s investment management fee (if debited directly from the account), and any other related account expenses. Account information has been compiled solely by O’Shaughnessy Asset Management, LLC, has not been independently verified, and does not reflect the impact of taxes on non-qualified accounts. In preparing this report, O’Shaughnessy Asset Management, LLC has relied upon information provided by the account custodian. Please defer to formal tax documents received from the account custodian for cost basis and tax reporting purposes. Please remember to contact O’Shaughnessy Asset Management, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, or modify any reasonable restrictions to our investment advisory services. Please Note: Unless you advise, in writing, to the contrary, we will assume that there are no restrictions on our services, other than to manage the account in accordance with your designated investment objective. Please Also Note: Please compare this statement with account statements received from the account custodian. The account custodian does not verify the accuracy of the advisory fee calculation. Please advise us if you have not been receiving monthly statements from the account custodian. Historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your account holdings correspond directly to any comparative indices. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. O’Shaughnessy Asset Management, LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the O’Shaughnessy Asset Management, LLC’s current written disclosure statement discussing our advisory services and fees is available upon request. The risk-free rate used in the calculation of Sortino, Sharpe, and Treynor ratios is 5%, consistently applied across time. The universe of All Stocks consists of all securities in the Chicago Research in Security Prices (CRSP) dataset or S&P Compustat Database (or other, as noted) with inflation-adjusted market capitalization greater than $200 million as of most recent year-end. The universe of Large Stocks consists of all securities in the Chicago Research in Security Prices (CRSP) dataset or S&P Compustat Database (or other, as noted) with inflation-adjusted market capitalization greater than the universe average as of most recent year-end. The stocks are equally weighted and generally rebalanced annually. Hypothetical performance results shown on the preceding pages are backtested and do not represent the performance of any account managed by OSAM, but were achieved by means of the retroactive application of each of the previously referenced models, certain aspects of which may have been designed with the benefit of hindsight. The hypothetical backtested performance does not represent the results of actual trading using client assets nor decision-making during the period and does not and is not intended to indicate the past performance or future performance of any account or investment strategy managed by OSAM. If actual accounts had been managed throughout the period, ongoing research might have resulted in changes to the strategy which might have altered returns. The performance of any account or investment strategy managed by OSAM will differ from the hypothetical backtested performance results for each factor shown herein for a number of reasons, including without limitation the following: n Although OSAM may consider from time to time one or more of the factors noted herein in managing any account, it may not consider all or any of such factors. OSAM may (and will) from time to time consider factors in addition to those noted herein in managing any account. n OSAM may rebalance an account more frequently or less frequently than annually and at times other than presented herein. n OSAM may from time to time manage an account by using non-quantitative, subjective investment management methodologies in conjunction with the application of factors. n The hypothetical backtested performance results assume full investment, whereas an account managed by OSAM may have a positive cash position upon rebalance. Had the hypothetical backtested performance results included a positive cash position, the results would have been different and generally would have been lower. n The hypothetical backtested performance results for each factor do not reflect any transaction costs of buying and selling securities, investment management fees (including without limitation management fees and performance fees), custody and other costs, or taxes – all of which would be incurred by an investor in any account managed by OSAM. If such costs and fees were reflected, the hypothetical backtested performance results would be lower. n The hypothetical performance does not reflect the reinvestment of dividends and distributions therefrom, interest, capital gains and withholding taxes. n Accounts managed by OSAM are subject to additions and redemptions of assets under management, which may positively or negatively affect performance depending generally upon the timing of such events in relation to the market’s direction. n Simulated returns may be dependent on the market and economic conditions that existed during the period. Future market or economic conditions can adversely affect the returns. 32 4/13/16 osam.com