The Quantitative U.S. Equity strategy is a diversified, actively managed strategy that aims to provide long-term capital growth and outperform the S&P 500 Index by investing in equity securities of U.S. issuers.
To achieve the strategy’s objectives, the investment team uses a quantitative investment process to build a portfolio that emphasizes traditional fundamental investment principles such as value and growth, while leveraging the advantages inherent to quantitative processes.
- Quantitative, actively managed core U.S. equity strategy.
- Proprietary quantitative model scores companies based on a balanced combination of multidisciplinary investment styles such as profitability, valuation, and growth potential.
- Portfolio built using optimization process to determine balanced combination of these factors.
- Diverse and experienced team dedicated to proprietary research, including model enhancements, with an emphasis on continuous development.
Investment philosophy and style
- The core philosophy that underlies our quantitative equity strategies is a belief that quantitative-driven processes can respond swiftly and systematically to market inefficiencies.
- The inefficiencies we seek to exploit generally fall into two groupings: informational and behavioural opportunities.
- Underlying the approach is the belief that portfolios with a better mix of the characteristics that drive stock returns over time – such as better valuations, profitability, and growth – will deliver superior returns relative to the market.
- We employ a core investment approach and our focus is on security selection, with a small portion of the risk budget allocated to sector selection.
- The Quantitative Investments team’s process assesses securities using seven security alpha factors derived from traditional fundamental investment principles:
- Profitability: Assesses a company’s ability to sustainably grow earnings, particularly for mature businesses. We include measures such as cash flow return on equity and EBIT margins.
- Quality: Quality means different things to different investors. We use this measure to assess a number of items that provide insight into management behavior and balance sheet strength, including the quality of earnings and sources of financing.
- Value: Can identify irrational investor behavior and mispriced investment opportunities. We consider a number of measures of Value, with an emphasis on cash flow based measures.
- Technical: Provides a signal of changes in the company’s fundamental momentum, derived from stock price movements. These measures typically signal changes before they show up in analysts’ estimates or target prices.
- Growth: Examines a firm’s growth prospects, particularly in its earlier stages. We consider measures of the sustainable growth rate of a company, including return on assets, trailing and forward return on equity, and earnings growth.
- Analyst: We consider measures of the views of the top sell-side research analysts to identify early signals of change as they arise, focusing on those analysts with the best forecasting record for each company.
- Sentiment: Sentiment is a powerful measure of whether a stock is ahead of itself or oversold in the near term.
- The other factors they consider – risk factors – are designed to assess individual company risk. Risk factors measure those characteristics of a stock that can impact returns, but where the direction and magnitude is unpredictable.
- Portfolio construction is done through an optimization process, followed by a trade review before trade execution.
- The optimization’s inputs are the team’s alpha and risk forecasts, quantified by the team’s proprietary factor model, in addition to constraints and transaction costs.
- The team scores companies based on their style characteristics (value, growth, profitability, etc.), and then combines them into a portfolio with a balanced combination of these factors. While the team is focused primarily on security selection, they will also tilt the portfolio towards sectors that score well.
The team is cognizant that other unintended exposures within the portfolio could potentially overwhelm the positive contributions from the factors that are emphasized. Therefore, the team will also quantify and neutralize the impact of risk factors – such as currency, beta, or market cap size – as much as possible within the portfolio construction process.