International


International Focused Strategies: click here for Enhanced Index description


Investment Universe

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

Quantitative Research
The firm’s Alpha Model is rooted in fundamental research, and our quantitative analysis provides a systematic method to apply this research. The model is dynamic in nature and draws from a proprietary library of both universe and sector-specific factors. Our factors examine characteristics such as:
 
  • relative value
  • earnings fundamentals
  • sentiment
  • management signals
  • intermediate price movements
On a quarterly basis the portfolio managers evaluate the factor library using various measures of historical factor effectiveness and stability in order to determine which factors provide the best forward looking alpha signal. Dynamic factor rotation occurs when factors with low predicted payoff are removed from the model and replaced with factors showing the most positive near-term forecast. As a result, the Alpha Model is a unique grouping of universe and sector-specific factors that may change on a quarterly basis. Typically, the Alpha Model contains 5 to 9 universe factors combined with the 5 to 9 factors that are most favorable for each GICS sector.

Each stock in the investment universe receives a ranking of 1 (most attractive) to 5 (least attractive), providing a comprehensive view of its relative value, operational and financial performance, and stock price behavior.





International Enhanced Index Strategies

Investment Universe

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

Quantitative Analysis
Then, we conduct a quantitative evaluation of each company in the universe according to proprietary, multi-factor groupings of valuation, sentiment and quality factors. Each of these three overarching factor groupings is designed to exploit a particular type of market inefficiency.
 
  • Valuation factors: designed to capitalize on behavioral inefficiencies:  Financial economists have observed that markets and security prices often move dramatically beyond what is warranted by their fundamentals. Similarly, psychologists have observed that there are systematic biases in the decision making process of individuals.  To take advantage of behavioral inefficiencies, we compare companies according to factors including: intrinsic value, and relative price-to-earnings and price-to-cash flow multiples.
  • Sentiment factors: designed to capitalize on informational inefficiencies:  Market efficiency requires that all market participants have access to the same information at the same time, with the same ability to analyze that information instantaneously. Studies have shown, however, that the market does not seem to digest new information immediately. For example, when companies announce earnings that are much above or below expectations, their stocks tend to react immediately; however, there is often a continuation of the price trend, called post-announcement drift. To take advantage of informational inefficiencies, we compare companies according to factors including: estimate diffusion, estimate trend, and price momentum.
  • Quality factors: designed to capitalize on agency issues and signaling by corporate insiders:  Over medium to long periods, earnings overwhelmingly explain returns to equities. However, managerial discretion over the timing and amount of earnings is large. As owners, shareholders are subject to agency costs at the hands of corporate management. Appropriate stewardship of capital by corporate management is key to generating high returns for the shareholders. In addition, there are signaling issues. For example, managers may engage in share buybacks when they believe that the shares are undervalued, and they may engage in share issuances when they believe that shares are overvalued. To take advantage of inefficiencies related to agency issues and insider signaling, we compare companies according to factors including: accruals, financial strength, and buyback or issuance activities.