Returns to Style using Style Research’s Markets Analyzer Hong Kong End March 2011
International Experience Style Investing works Value and Small Cap works long term Best Value Markets – Japan and Korea Most markets have small cap premium High beta stocks do not generally perform well
Overview Value works long term – like in other markets – Low Accruals best over 10 years – 5.1% pa xs return Small cap performs better than large cap – Like other markets High Beta does not work – like other markets Nothing works consistently – Top 10 inconsistent over different time periods
Approach Benchmark = market – All stocks with market cap of USD 100 million Analysis after sector adjustment – Factor screen within sectors – Eliminates sector bias Rebalanced every 6 months – Repriced every month – Includes dividends
Value
Book to Price
Dividend Yield
Earnings Yield
Cashflow Yield
Sales to Price
EBITDA to Price
Growth
Return on Equity
Growth in Earnings per Share
Income to Sales
Sales Growth
Forecast Earnings
Forecast Earnings Revisions
Other
Market Cap
Beta
Price Momentum – 6 months
Price Momentum – 12 months
Quality
Low Accrual
Debt to Equity
Stability of Earnings Growth
Sustainable Growth Rate
Stability of Sales Growth
Stability of Forecast Earnings
Returns to Style – last 10 years Quality and Value works! SA, annualised
10 year XS returns
Weight: Market Cap, Rebal 6 mths Xs Return 5.1% pa T/over 78% pa
Weight: Market Cap, Rebal 3 mths Xs Return 5.4% pa T/over 94% pa
Weight: Total Earnings, Rebal 6 mths Xs Return 5.5% pa T/over 102% pa
overview Value works long term – like in other markets – Low Accruals best over 10 years Small cap works better than large cap – Like other markets High Beta does not work – like other markets Nothing works consistently – Top 10 inconsistent over different time periods – Rebalance and weighting schemes make a difference