The momentum-value standoff continues


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Research Signals – May 2019

The trade war between value and momentum continued as the
standoff between the US and China sent equity markets reeling, with
stocks capping their worst month of the year. Factor performance in
May reflected momentum's latest salvo on valuation (Table 1). High
risk names were the casualties of the war as investors sought out
traditional safe havens amid worries about the impact of trade
tariffs on global economies. Concerns were reinforced by the
J.P.Morgan Global Manufacturing PMI's lowest reading since October
2012, falling into contraction territory as international trade
flows weighed on the sector.

  • US: High momentum names, gauged by Industry-adjusted 12-month
    Relative Price Strength, outperformed at the expense of undervalued
    stocks, captured by TTM EBITDA-to-Enterprise Value
  • Developed Europe: Investors reflected trends from other
    regional equity markets, in addition to signals from securities
    lending markets favoring stocks with lower short interest, such as

    Continue reading “The momentum-value standoff continues”

May 2019 Model Performance Report


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  • US: Model performance was weak across the
    board for the US Large Cap universe, with the Price Momentum model
    earning positive returns at 1.98%. The Relative Value model
    performed the worst, while the rest of the models saw negative
    returns. Over the US Small Cap universe our Relative Value model
    had the strongest one month decile return spread performance,
    returning 2.40%, while the Deep Value model lagged.
  • Developed Europe: Within the Developed Europe
    universe our Price Momentum model was the top performer on a one
    month decile return spread basis, returning 10.21%, while the
    Relative Value model trailed.
  • Developed Pacific: Over the Developed Pacific
    universe, the Price Momentum model had the strongest one month
    decile return spread performance, returning 5.90%, while the Value
    Momentum model lagged. The Price Momentum model's one year
    cumulative performance is currently 16.25%.
  • Emerging Markets: Within the

    Continue reading “May 2019 Model Performance Report”

The ESG framework – Adding value through corporate sustainability scores


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Research Signals – May 2019

A range of environmental, social and governance (ESG) related
themes have the potential to heavily impact the long-term viability
of equity investments, from climate change and other environmental
risks, to human capital management, compensation practices, supply
chain impact and brand reputation. These value drivers extend well
beyond those captured in traditional financial reporting, but are
nevertheless fundamentally linked to shareholder returns. Using a
set of specialty data (formerly the ASSET4 database) provided by Refinitiv, we confirm the
ability to add value through ESG data, and propose possibilities
for integration into traditional modeling processes. We first added
ESG factors to our library in 2009 and at that time noted the
limited use of ESG data by investment managers. Ten years later, we
review performance of factors and screens, as well as extend our
research to global markets, where the interest in ESG data is
growing

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Factors follow the Fed’s pivot


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Research Signals – April 2019

US investors have extended their celebration of the Fed's dovish
pivot to a more patient stance on interest rate hikes, with stocks
hitting record highs to finish off the month of April. While most
major regional stock markets are still reinforced by rising
momentum, factor performance in April was characterized by a pivot
from momentum to valuation (Table 1). At the macro level, the
global manufacturing economy remained subdued, based on the
J.P.Morgan Global Manufacturing PMI barely above the 50.0 no-change
mark, dragged down by international trade flows. However, glimmers
of hope on the US-China trade dispute and economic stimulus in
China have investors posturing that stocks prices will not
pivot.

April 2019 Model Performance Report


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  • US: Model performance was strong across the
    board for the US Large Cap universe, with the GARP model setting
    the pace with a 4.72% spread return during the month, while Price
    Momentum suffered a negative return. Over the US Small Cap universe
    our Relative Value model had the strongest one month decile return
    spread performance, returning 5.75%, while the Price Momentum model
    lagged.
  • Developed Europe: Within the Developed Europe
    universe our Relative Value model was the top performer on a one
    month decile return spread basis, returning 2.72%, while the Price
    Momentum model trailed.
  • Developed Pacific: Over the Developed Pacific
    universe, the Deep Value model had the strongest one month decile
    return spread performance, returning 0.51%, while the Price
    Momentum model lagged. The Deep Value model's one year cumulative
    performance is currently 12.87%.
  • Emerging Markets: Within the Emerging Markets
    universe our Value Momentum model had

    Continue reading “April 2019 Model Performance Report”

Q1 Securities Finance Quarterly Review


This post is by Sam Pierson from Data Explorers Research and News


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Welcome to the Securities Finance Review for Q1 2019. Two
commentary features from the review are excerpted below. The full
report is available for download via the link at the bottom of this
page. Feedback is welcome and appreciated, please direct to msf-media@ihsmarkit.com

Q1 Revenue Update

  • Lending revenues improve 3% compared with Q4 2018
  • Government bond balances and revenues decline
  • EUR denominated corporate bonds in demand
  • Asia remains bright spot for equity lending, particularly Japan
    & South Korea

Global securities lending revenues for Q1 2019 came in at
$2.4bn; 10 percent lower than Q1 2018, and 3% higher than Q4 2018.
Equity lenders have seen a lack of special balances, while there
has been some marginal cooling in previously hot market segments,
including: government bonds, corporate bonds and ETFs. The revenues
are within the range of the preceding four quarters, however the
breakdown of returns continues to evolve

Continue reading “Q1 Securities Finance Quarterly Review”

Global economy gains momentum for second month running in March but manufacturing malaise deepens


This post is by Chris Williamson from Data Explorers Research and News


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The following is an extract from IHS Markit's monthly PMI
overview presentation. For the full report please click on the link
at the bottom of the article.

Global economy gains momentum but sentiment grows
gloomier

The pace of global economic growth picked up again in March from
a near two-and-a-half year low seen at the start of the year, but
remained among the weakest since 2016. At 52.8 in March compared to
52.6 in February, the JPMorgan Global PMI, compiled by IHS Markit,
rose for a second successive month to signal the strongest
expansion of global output since November. The first quarter
average PMI reading is indicative of worldwide GDP rising at an
annual pace of just over 2% (at market prices).

Business sentiment meanwhile sank lower, however, casting doubt
over whether the current improvement in growth momentum can be
sustained. The current level of business confidence is

Continue reading “Global economy gains momentum for second month running in March but manufacturing malaise deepens”

March 2019 Model Performance Report


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  • US: Within the US Large Cap universe the Price
    Momentum model had the strongest one month decile return spread
    performance returning 0.82% during the month while the rest of the
    models lagged, especially Relative Value. Over the US Small Cap
    universe our Price Momentum model had the strongest one month
    decile return spread performance, returning 2.46%, while the
    Relative Value model lagged.
  • Developed Europe: Within the Developed Europe
    universe our Price Momentum model was the top performer on a one
    month decile return spread basis, returning 5.05%, while the Deep
    Value model trailed.
  • Developed Pacific: Over the Developed Pacific
    universe, the Price Momentum model had the strongest one month
    decile return spread performance, returning 3.72%, while the Value
    Momentum model lagged. The Deep Value model's one year cumulative
    performance is currently 17.39%.
  • Emerging Markets: Within the Emerging Markets
    universe our models struggled. The Price Momentum

    Continue reading “March 2019 Model Performance Report”

The next catalyst


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Research Signals – March 2019

Stocks strengthened worldwide as global equities posted their
strongest quarter in several years, supporting high momentum
strategies at the expense of valuation (Table 1). Investors put
their hopes on China and the US reigniting the lackluster global
manufacturing economy, despite the global manufacturing sector's
unchanged J.P.Morgan Global Manufacturing PMI reading from
February's 32-month low. However, if progress on the long-running
trade dispute between the US and China has already been priced into
the market, what will the next catalyst be to sustain momentum in
equity markets?

  • US: Top performing factors among large caps captured a blend of
    low risk and high momentum, as represented by 60-Month Beta and
    Rational Decay Alpha, respectively
  • Developed Europe: Investors favored stocks with strong momentum
    and avoided firms with weak revisions, as captured by
    Industry-adjusted 12-month Relative Price Strength and 3-M Revision
    in FY2 EPS Forecasts, respectively
  • Developed

    Continue reading “The next catalyst”

Securities Lending Q1 Update


This post is by Sam Pierson from Data Explorers Research and News


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  • Lending revenues improve 3% compared with Q4 2018
  • Government bond balances and revenues decline
  • EUR denominated corporate bonds in demand
  • Asia remains bright spot for equity lending, particularly Japan
    & South Korea

Global securities lending revenues for Q1 2019 came in at
$2.4bn, 10% lower than Q1 2018. The good news is that the Q1
revenue also reflects 3% sequential improvement compared with Q4
2018. Equity lenders have seen a lack of specials balances, while
there has been some marginal cooling in previously hot market
segments including government bonds, corporate bonds and ETFs. The
revenues are within the range of the preceding four quarters,
however the breakdown of returns continues to evolve with changing
needs of market participants.

Lending of government bonds, particularly US Treasuries, has
taken on an increased significance in recent years. The demand
driver has largely been the collateral needs of broker-dealers in
relation to regulatory

Continue reading “Securities Lending Q1 Update”

Overstock.com: Lendable shares in short supply


This post is by Sam Pierson from Data Explorers Research and News


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  • New borrows most expensive on record
  • Re-rates driving up borrow costs for existing short positions
  • Share price 75% below all-time high observed Jan 5th 2018

Overstock.com announced last Friday that it will report Q4 2018 earnings before markets open on March 18th. The current short interest is at the highest level recorded in terms of shares (16.7m), which equates to 68.7% of the free float. It is also the 4th most expensive US equity to borrow with at least $25m on loan. The shares are trading 75% below the all-time high of $86.9 per share, however the current share price $22 reflects a 70% rally from the 2018 low on Dec 13th. Bears may have gotten the better of the bulls over the last year, however short positions have been put under pressure by the rise in borrow costs along with the rally in share

Continue reading “Overstock.com: Lendable shares in short supply”

February 2019 Model Performance Report


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  • US: Within the US Large Cap universe the
    Historical Growth model had the strongest one month decile return
    spread performance returning 3.15% during the month while the Deep
    Value model lagged. The performance of our models over the US Small
    Cap universe was weak with the Earnings Momentum returning only
    1.39%.
  • Developed Europe: The models over the
    Developed Europe universe struggled during the month. The poor
    performance of the models was driven by the long portfolios.
  • Developed Pacific: Our models struggled over
    the Developed Pacific universe during the month, with Earnings
    Momentum returning only 0.89%. The Deep Value model's one year
    cumulative performance is currently 14.08%.
  • Emerging Markets: Within the Emerging Markets
    universe our Earnings Momentum model had the strongest one month
    decile return spread performance, returning 0.92%. The Price
    Momentum model's one year cumulative performance has improved to
    20.39%.
  • Sector Rotation: The US

    Continue reading “February 2019 Model Performance Report”

Hedging the corporate profit cycle


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Research Signals – February 2019

The global manufacturing sector eased to a 32-month low,
according to the February J.P.Morgan Global Manufacturing PMI, with
major economies including the US, the euro area and Japan all
slowing. However, partially offsetting the global slowdown was
China, whose Shanghai Composite moved from being the worst
performer last year to the best at the start of this year. In turn,
while high beta stocks initially led the market rebound off
December's low, high quality took over as a much more prominent
theme in February (Table 1), perhaps as investors postured for a
maturing business cycle and as major markets showed signs of having
already priced in optimism toward the end of February.

Social media indicators in the UK


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Research Signals – February 2019

In March 2014, we introduced a set of social
media indicators for US markets, in partnership with Social Market
Analytics, Inc., that classify the text content in daily Twitter
posts to construct a family of social media signals. We now expand
our coverage to the UK market using a similar factor structure.

  • For names at the extreme tails (2 standard deviations) of the
    factor distribution, we report notable S-Score™ average daily
    return spreads of 0.097% since August 2015, with robustness out to
    longer 10- and 20-day holding periods
  • When focusing on frequently tweeted names, average 20-day
    return spreads improve to 0.383% from 0.298% for the stand-alone
    strategy, while, for long-only strategies, our empirical results
    again demonstrate positive performance for names at the
    2-standard-deviation tail, with average excess returns of 0.049% on
    an open-to-close basis, extending to 0.389% out to

    Continue reading “Social media indicators in the UK”

January 2019 Model Performance Report


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  • US: Within the US Large Cap universe the Price
    Momentum model had the strongest one month decile return spread
    performance returning 0.51% during the month while the Deep Value
    model lagged. The performance of our models over the US Small Cap
    universe was weak with the QSG Small Cap returning only
    -0.06%.
  • Developed Europe: Within the Developed Europe
    universe our Deep Value model was the top performer on a one month
    decile return spread basis, returning 2.62%, while the Earnings
    Momentum model trailed.
  • Developed Pacific: Over the Developed Pacific
    universe, the Deep Value model had the strongest one month decile
    return spread performance, returning 5.24%, while the Price
    Momentum model lagged. The Deep Value model's one year cumulative
    performance is currently 15.53%.
  • Emerging Markets: Within the Emerging Markets
    universe our Relative Value model had the strongest one month
    decile return spread performance, returning 5.91%.

    Continue reading “January 2019 Model Performance Report”

January melt-up


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Research Signals – January 2019

Contrary to the bitter cold temperatures that gripped a large
swath of the US in January as the polar vortex sent frigid Arctic
air southward, warming thoughts of patience from the Federal
Reserve and other central banks and improving US-China trade
developments sent stocks soaring in the first trading month of the
year. In turn, high risk stocks heated up, resulting in negative
performance from 60-Month Beta and 24-Month Value at Risk across
all our coverage universes, reversing December's trends (Table 1).
Investors must now wait and see if January's thawing of the
December stock market chill will continue, while the global
manufacturing sector slowed closer to stagnation, according to the
January J.P.Morgan Global Manufacturing PMI which fell to its
lowest reading since August 2016.

Factor and style model performance: 2018 in review


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Research Signals – December 2018

Major global equity markets came close to or entered bear
territory in 2018, as many regional benchmarks posted their worst
annual declines since the financial crisis or longer. Markets
succumbed to slowing economic growth and trade tensions, especially
between the US and China. The resulting increased volatility lent
support to the risk-off trade, as demonstrated by outperformance of
60-Month Beta across all our coverage universes in 2018 (Table 1).
The economic outlook for the coming year may well reflect divergent
regional growth trends which developed over the course of 2018,
undoing the strong, synchronized growth which the global economy
began the year with. One major risk to the global economy in the
coming year is further contraction in world trade, as manifested by
the December J.P.Morgan Global Composite Index which eased to a
27-month low.

December 2018 Model Performance Report


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  • US: Within the US Large Cap universe the Value
    Momentum 2 model had the strongest one month decile return spread
    performance returning 1.41% during the month while the Earnings
    Momentum model lagged. Over the US Small Cap universe our Relative
    Value model had the strongest one month decile return spread
    performance, returning 6.23%, while the Price Momentum model
    lagged.
  • Developed Europe: Within the Developed Europe
    universe our Price Momentum model was the top performer on a one
    month decile return spread basis, returning 2.57%, while the Deep
    Value model trailed.
  • Developed Pacific: Over the Developed Pacific
    universe, the Price Momentum model had the strongest one month
    decile return spread performance, returning 5.27%, while the
    Earnings Momentum model lagged. The Price Momentum model's one year
    cumulative performance is currently 16.10%.
  • Emerging Markets: Within the Emerging Markets
    universe our Price Momentum model had the strongest one month

    Continue reading “December 2018 Model Performance Report”