factset symposium 2015 - fast track your quant research
TRANSCRIPT
Fast Tracking Your Quant Research: From Idea to Execution
Jared Ryan
Americas Analytics Sales
Agenda
+ Backtest and Validate your Investment Ideas + Magic Formula Investing
+ Conduct Factor and Market Analysis + Research new alpha signals
+ Analyze drivers of market performance
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Backtest and Validate your Investment Ideas
+ Universe: + MSCI All Country World Index
+ Exclude Financials and Utilities
+ Exclude companies with a market cap below $50 million
+ Component Factors: + Earnings Yield (EBIT / Market Cap)
+ Return on Capital (EBIT / (Net Fixed Assets + Working Capital)
+ Composite Score Creation: + Rank and sum Earnings Yield and Return on Capital
+ Invest and monitor top 100, 50 and 30
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Component Factor Overview
+ Earnings Yield and ROC act as complementary factors
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Summarize Performance by Year
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Non-Overlapping Risk vs. Return Analysis
+ Companies ranked 51-100 experience the best risk/return trade-off
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Non-Overlapping Cumulative Return
+ 51-100 begin to increase outperformance after 2009
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Overlapping Cumulative Return
+ Overlapping ranks dilutes the return earned within the Top 51-100
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Diversification Reduces Max Drawdown
+ Lower duration of drawdowns in the Top 51-100
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Conduct Factor and Market Analysis
+ Universe: + MSCI World
+ Alpha Factors: + Size Factor
+ Value Factors
+ Profitability Factors
+ Volatility Factors
+ Factor Portfolios = Long Top 20% and Short Bottom 20%
+ Horizon + 10 Years
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Factor Performance Summary by Year
+ CF/P had positive performance ~90% of the time
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Quickly Analyze Risk/Return Spectrum
+ CF/P has the highest return and among the lowest risk
12
MORE RISK
M
OR
E R
ETU
RN
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Rank and Compare Factor Performance
+ CF/P has the highest Sharpe Ratio
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CF/P Cumulative Quintile Performance
+ CF/P has a monotonic signal
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Efficiently Decompose Alpha by Country/Sector
+ Hit Rate Matrix reveals where high CF/P does well across the MSCI World in Up Markets
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MSCI World Valuations Over Time + CF/P is below 10 year average median
+ CF/P levels for the U.S. trade at a premium to MSCI World
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Factor Performance by Volatility Environment
+ CF/P, ROA and ROIC do best when cross-sectional volatility is high
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Concluding Remarks
+ Leverage Alpha Testing to Efficiently: + Validate existing Universal Screens and investment hypothesis
+ Research alpha signals to develop new strategies
+ Analyze market valuations and drivers of performance
+ Common Challenges to Quantitative Management + Continuous need to update models or find new factors
+ Adaptability of models to different market environments
+ Implementation of process and dissemination of results
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Questions? Jared Ryan
512.652.3112
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