GCM’s founders began developing quantitative stock selection models based on estimate revisions and earnings surprise in 1987. In the early 1990’s, multi-factor valuation models were added to the domestic research platform. Research showed that synergies between these models resulted in improved performance and a well-balanced signal over varied market cycles. Tremendous growth in the availability of data, technological advances, and a quantitative research team that strives for excellence have led to models that are even more robust and powerful today than when they were first developed.

Investment Universe
Our quantitative research process begins with the collection of data on our initial investment universe.

Then, using a proprietary categorization methodology, we group companies into four unique categories. Our methodology is based on the idea that companies within a certain category operate within a similar phase of their business cycle and share common financial characteristics that influence the way they are viewed by investors. Attractive investment opportunities can be found in each of the four categories. The goal of categorization is to group companies in a manner that allows us to customize factor and sub-composite weights, because companies in any one category tend to respond differently than companies in the other three categories.

Total Composite Model
After categorizing the investment universe, we evaluate companies through the application of our Total Composite Model. The Total Composite Model takes a bottom-up approach to evaluating common stock, and its objective is to provide a single quantitative ranking to serve as an overall indication of a stock’s attractiveness relative to its peers. The Total Composite Model considers valuation, earnings and momentum measures as captured by the following six sub-composites.
  • Traditional Valuation:  Assesses value as measured by multiples of earnings, sales, cash flow, and other items
  • GARP Valuation:  Provides a value assessment in light of current and expect growth and the sustainability of growth
  • Earnings Growth:  Evaluates recent and expected earnings growth and trends with insight into the sustainability of that growth
  • Earnings and Sales MomentumConsiders earnings and sales surprise and analysts’ expectations
  • Earnings Quality:  Evaluates the overall quality, consistency and sustainability of a company’s profitability
  • Trading Momentum:  Evaluates price behavior to identify the direction of near-term momentum and investor sentiment
Model Output
The Total Composite Model produces a ranking for each stock that indicates our expectation for its performance relative to its peers. Each of the sub-composites also produces a ranking that provides us with additional color on the underlying strengths and weaknesses of each company.