Expanding the Opportunity Set with Shareholder Yield

When most investors hear the word “yield” they immediately think about dividends. Things like stock buybacks and debt paydown typically don’t come to mind. But those are also yields, or ways companies can return cash to shareholders. When dividends, buybacks and debt paydown are combined, they give us something called shareholder yield. Calculating and sorting stocks by shareholder yield is a systematic way to identify companies that are returning cash to shareholders via these three… Read More

Quant Strategy for Picking Basketball Winners

An recent article in Bloomberg suggests that a factor investing technique might work well when picking winners in the March Madness brackets. The technique involves integrating traditional factor criteria with a five-star system for the bracket pools, as follows: Quality: One star for teams in the highest or second highest seed ranking according to ESPN’s Basketball Power Index; Size: Add a star for teams which were the most or second-most successful in prior NCAA tournaments… Read More

The New “Dogs of the Dow”

The classic, hands-off investing strategy known as the “Dogs of the Dow” kept investors “relatively safe” last year, according to an article in CNBC.com. “If one had bought the 10 highest-yielding stocks in the Dow Jones Industrial Average at the beginning of 2018 and held them all year long, it would have only lost 1.5 percent, versus the Dow’s nearly 6 percent annual loss and the S&P 500’s 62 percent.” According to the article, this… Read More

The O’Shaughnessy Approach: Guarding Against Narrative-Loving Humans

An article in CityWire profiles the father-and-son investing duo of Jim and Patrick O’Shaughnessy, chief investment officer and chief executive respectively at quantitative money management firm O’Shaughnessy Asset Management. Jim O’Shaughnessy, who began his career in quantitative investing in 1987 and has authored four best-selling books on finance, explains, “We want to find as much empirical evidence that supports certain ways of selecting securities and – equally importantly – of ignoring securities that would fail… Read More

Goldman’s Rebuilt Quant Approach

When quantitative equity funds experienced a meltdown ten years ago, Goldman Sachs (among the hardest hit) “began to rebuild the strategies with less leverage and more diversity,” according to a recent Bloomberg article. “A decade later,” the article says, “the quant unit has clawed itself back to respectability,” and now manages about $110 billion. But the team faces stiff competition, “with almost every asset manager chasing quant money, betting on similar factors and shaving fees… Read More

Jason Zweig: Use Simple Tests Before Investing in a Quant Fund

In a recent article for the Wall Street Journal, Jason Zweig offers some tips on how an investor can devise his own quant strategy. “Perhaps it is cheaper to learn from the quants than to hire them,” he argues. Zweig shares findings of a Duke University group of researchers that found, during the period from 1996 to 2014, “systematic funds (which describe themselves with such words as ‘algorithmic’, ‘computer-driven’, or ‘statistical’) performed about the same… Read More

Quant Strategies Are Not Magic

 The flow of funds into the quant investment strategies continues but, like most new ideas, this one doesn’t come without caveats, writes Validea CEO John Reese in a recent Forbes article. Reese argues how quant strategies shouldn’t be considered a magic bullet, but rather a tool to thwart an emotional approach to investing. He underscores the advantage of the type of blended approach used by Validea, and identifies the following picks identified using his stock… Read More

Stock-Pickers Beware: Bots Are Here

BlackRock’s March announcement that the firm had reduced its staff of stock pickers to increase its focus on quant strategies may support the consensus that “active management is dying,” but Bloomberg columnist Nir Kaissar argues that “the problem is not that active managers fail to outperform the market; it’s that they keep that outperformance for themselves through high fees.” “Smart beta” index funds, on the other hand, have been able to beat the market at… Read More

Twitter and the Fed

Research shows that trading strategies built around tweets in the days preceding Fed meetings have been profitable, writes Steve Russolillo in this week’s The Wall Street Journal. As the use of quantitative investment strategies continues to rise, social-media platforms such as Twitter have become popular sources of intel to gauge investor sentiment, says Russolillo, referring to the frequency and impact of the president elect’s tweets since the election. A study conducted by Andrew Lo, a… Read More

Quant Strategies Continue to Evolve

While the financial crisis of 2007 spurred a lot of questions regarding the role that quantitative investment strategies played in the market’s drop, these strategies continue to evolve, writes Validea CEO John Reese in this week’s Forbes. Reese gives an overview of the evolution of quant investing, which has been used for decades, and the more recent move toward incorporating big data. He points out, however, that there are concerns related to data accuracy and… Read More