Our current portfolio is composed of 20
stocks, the top 5 of
which are Total SA (TOT), Medtronic plc (MDT), Cigna Corp (CI), United Healthcare (UNH), and Intel Corporation (INTC).
The portfolio is composed 100% of large-cap equities, 42% of which are
classified as Value, 45% Core, and 13% Growth. Energy, Healthcare, and Technology sectors make up 74% of
the
portfolio. Its P/E ratio and P/B ratios are 82% and 80% of the S&P
500’s, respectively, and
its dividend yields 36% more than the S&P 500.
About Sawyer Investment Management Company:
SIMCO
is a Texas-registered Investment Adviser with its principal place of
business in Dallas, Texas. It was formed on January 1, 2015 and is
wholly owned by Ryan Sawyer, who is a CFA Charterholder and a Certified
Public Accountant.
SIMCO specializes in the
construction of equity portfolios, and is therefore an ideal resource
for long-term investors. The firm goes through a rigorous process for
selecting each and every holding in the portfolio. Rooted in the
empirical research of academia, the portfolios are generally
characterized as large-cap value momentum. For more information about
how the portfolios are managed, see our website.
The authors explore the Portuguese stock market over the period 1988 - 2015, and they want to learn the performance of portfolios that have characteristics of both value and momentum.
First, they form zero-cost portfolios for value (Price-to-book) and momentum (past returns) by finding the return of the top third ranking minus the bottom third ranking portfolios; then they form a portfolio that attributes 50% of the return of the zero-cost value portfolio and 50% of the return of the zero-cost momentum portfolio.
They first analyze this combined portfolio by looking at different observation and holding periods (i.e., 1 -12 months for each). They find that in all observation and holding periods, the combined zero-cost portfolio has positive average returns. The 1 month holding period seems to have the highest returns; however, longer holding periods tend to have less volatility resulting in higher sharpe ratios and alphas. The 1-month and 12-month holding periods seem to have less significant t-statistics than the 3-month to 9-month holding periods.
Next, the authors broke down the returns into subperiods and split the combined portfolio into its momentum and value components. They find that the combined portfolio tends to perform best in late-stage bull markets. They also find that the momentum portfolio performs well in all subperiods; whereas, the value portfolio has ups and downs. Finally, they find a correlation between the value and momentum portfolio of -0.22, signally great diversification ability by combining the two characteristics.
Next, the authors look at the performance of the value and momentum portfolios at different holding periods. They find that the value portfolio continues to increase in performance through about 2 years, then levels off. The momentum portfolio increases in performance through the first year, then decreases to 0% by the end of the third year.
Next, the authors sort the value and momentum portfolio thirds into 9 portfolios (i.e., past winners - value, past winners - growth, past losers - value, past losers - growth, and so on). They find in all cases that combining the top winners with value outperforms past losers with growth monotonically.
Finally, the authors explore holding the value/past winner portfolio versus holding the growth/past loser over a five year period. The return of holding the value/winner portfolio exceeds the growth/loser portfolio by about 1.5% for up to 2 years; then this excess return steadily decreases until the difference in return is about 0.3% by year 5.
Lobão, J., & Azeredo, M. (2018). Momentum meets value investing in a small European market. Portuguese Economic Journal, 17(1), 45–58.
Our current portfolio is composed of 20
stocks, the top 5 of
which are Total SA (TOT), Medtronic plc (MDT), Cigna Corp (CI), United Healthcare (UNH), and Intel Corporation (INTC).
The portfolio is composed 97% of large-cap equities, 39% of which are
classified as Value, 47% Core, and 11% Growth. Energy, Healthcare, and Technology sectors make up 68% of
the
portfolio. Its P/E ratio and P/B ratios are 84% and 84% of the S&P
500’s, respectively, and
its dividend yields 52% more than the S&P 500.
About Sawyer Investment Management Company:
SIMCO
is a Texas-registered Investment Adviser with its principal place of
business in Dallas, Texas. It was formed on January 1, 2015 and is
wholly owned by Ryan Sawyer, who is a CFA Charterholder and a Certified
Public Accountant.
SIMCO specializes in the
construction of equity portfolios, and is therefore an ideal resource
for long-term investors. The firm goes through a rigorous process for
selecting each and every holding in the portfolio. Rooted in the
empirical research of academia, the portfolios are generally
characterized as large-cap value momentum. For more information about
how the portfolios are managed, see our website.
Our current portfolio is composed of 20
stocks, the top 5 of
which are Total SA (TOT), General Mills Inc (GIS), Cigna Corp (CI), Medtronic plc (MDT), and Intel Corporation (INTC).
The portfolio is composed 93% of large-cap equities, 37% of which are
classified as Value, 47% Core, and 10% Growth. Energy, Healthcare, and Consumer Defensive sectors make up 57% of
the
portfolio. Its P/E ratio and P/B ratios are 90% and 92% of the S&P
500’s, respectively, and
its dividend yields 57% more than the S&P 500.
About Sawyer Investment Management Company:
SIMCO
is a Texas-registered Investment Adviser with its principal place of
business in Dallas, Texas. It was formed on January 1, 2015 and is
wholly owned by Ryan Sawyer, who is a CFA Charterholder and a Certified
Public Accountant.
SIMCO specializes in the
construction of equity portfolios, and is therefore an ideal resource
for long-term investors. The firm goes through a rigorous process for
selecting each and every holding in the portfolio. Rooted in the
empirical research of academia, the portfolios are generally
characterized as large-cap value momentum. For more information about
how the portfolios are managed, see our website.
The authors set out to explore the investability premium (i.e., a premium earned on stocks in countries where foreigners can more easily invest in them) in emerging market countries. The thought is that if the stocks in a country are more investable, then a premium will be required by foreign investors due to increased risk (e.g., currency risk, information asymmetry, government risk, etc.).
They first create a regression that is composed of the market return, and the size, value, momentum and investability premiums. They find that for all the 29 countries in the 1988-2006 period, each of the premiums is statistically significant. They find that on average, higher beta, large-cap, growth, past winners, and more investable companies tend to outperform lower beta, small-cap, value, past losers and less investable companies.
Next, they split these regressions into upstate and downstate regimes. They find the same conclusion for each of the regimes as was found overall, except for the market beta and the investable premium (both of which reverse sign). So, in a downstate, less investable companies outperform more investable companies, and lower beta stocks outperform higher beta stocks.
Next, they create four regressions that start with the investability premium and adds the other factors sequentially. In all cases, the market return is the most significant explainer of stock returns on average, followed by the investability premium. Then, by splitting these regressions into "less investable" and "more "more investable" tiers, they find that the investable premium becomes more significant (and the other factors become less significant) as the level of investability of the companies increases.
Finally, the authors split the previous regression into two regimes (the 1988-1995 period and the 2000-2006 period). They find the same results as the overall time period, where the market return and the investability premium are the primary determinants of market returns, and as the investability of the companies increases, the investability premium becomes more significant as an explainer of returns.
Girard, E. C. (2010). Empirical Evidence of the Existence of Investable Premiums in Emerging Market Investable Stocks. Financial Review, 45(4), 1025–1051.
Our current portfolio is composed of 20
stocks, the top 5 of
which are Total SA (TOT), General Mills Inc (GIS), Cigna Corp (CI), United Healthcare (UNH), and Intel Corporation (INTC).
The portfolio is composed 98% of large-cap equities, 39% of which are
classified as Value, 45% Core, and 13% Growth. Energy, Healthcare, and Technology sectors make up 68% of
the
portfolio. Its P/E ratio and P/B ratios are 91% and 95% of the S&P
500’s, respectively, and
its dividend yields 56% more than the S&P 500.
About Sawyer Investment Management Company:
SIMCO
is a Texas-registered Investment Adviser with its principal place of
business in Dallas, Texas. It was formed on January 1, 2015 and is
wholly owned by Ryan Sawyer, who is a CFA Charterholder and a Certified
Public Accountant.
SIMCO specializes in the
construction of equity portfolios, and is therefore an ideal resource
for long-term investors. The firm goes through a rigorous process for
selecting each and every holding in the portfolio. Rooted in the
empirical research of academia, the portfolios are generally
characterized as large-cap value momentum. For more information about
how the portfolios are managed, see our website.
The authors are looking to explore the style premiums in the UK over the 1982 - 2014 period. They also want to explore how the premiums are affected by various macroeconomic indicators in expansionary and recessionary regimes.
First, they look at the size, value, and momentum premiums over the full period and find the momentum period to be 0.95%, followed by the value premium at 0.34%, and finally the size premium at 0.12%. Next, they split the sample into expansion and recession regimes and find that the value and momentum premiums remain the same no matter if in an expansionary or recessionary regime; however, they find that the size premium actually goes negative during a recession. They also find that the size premium is positively skewed, while the value and momentum premiums are negatively skewed, no matter the regime.
Next, the authors regress various macroeconomic indicators against the size, value, and momentum factor premiums. They find that increases to the GDP growth rate, inflation, and money supply significantly explain increases to the size premium; increases to the short-term interest rates and credit spread significantly explain an increase to the value premium; and no macroeconomic indicators significantly explain the changes in the momentum premium. However, the R^2 of the regressions are very small, so the regression equation likely does not provide a good enough fit.
Next, the authors split that sample into two regimes: expansion and recession; where they regress the same macroeconomic indicators against the same factor premiums in the two different regimes. They find that the alphas in the regression equation are negative for the size and value premiums, so investors are likely better off owning large-gap growth companies during a recession; also, the factor premium for momentum is significantly less during a recession than in an expansion.
An increase to the GDP growth rate positively explains the size and value premiums in an expansion; however, it negatively explains the value premium in a recession. The authors suggest that value companies tend to be in certain industries that don't turn around until late in the economic cycle, thereby foregoing the benefits of GDP growth during the recession.
An increase to inflation positively explains the size premium in both regimes, but is insignificant for the other factors. The authors suggest that it's easier for smaller companies to pass along price increases, so they would maintain their profitability.
An increase to the short-term interest rates positively explains the size premium in a recession; the authors suggest that small companies have a more difficult time obtaining capital, so an increase to interest rates hurts them more than large companies, and they therefore earn a premium for that risk. An increase to short-term interest rates positively explains the value premium in both regimes; the authors suggest that value companies are much more leveraged than growth companies, and investors would require a higher premium over growth companies for taking on that risk during a rising rate environment. An increase to short-term interest rates negatively explains the momentum premium in both regimes.
An increase to the term structure positively explains the size premium in a recession. An increase to the term structure positively explains the value premium in an expansion and negatively explains the value premium in a recession; the authors suggest that growth companies don't pay as high a dividend, so when the credit spread increase, the investors require a higher premium to compensate them for the higher rate environment that they are foregoing. An increase in the term structure negatively explains the momentum premium in a recession; the authors suggest that the past winner are typically higher beta, so as the term spread increases, the market price goes down and more severely affects the higher beta companies than the lower beta companies.
An increase to the credit spread positively affects the size and value premiums in both regimes. An increase to the credit spread negatively affects the momentum premium in an expansion and positively affects the momentum premium in a recession.
An increase to the money supply does not significantly affect any of the factors in an expansion; however, it is positively related to the size factor and negatively related to the value factor in a recession. The authors suggest that smaller companies do not have as easy access to the growth in the money supply that bigger companies do, so investors require a higher premium for not being relieved from the ongoing recession.
Sarwar, G., Mateus, C., & Todorovic, N. (2017). A tale of two
states: asymmetries in the UK small, value and momentum premiums. Applied Economics, 49(5), 456–476.
Our current portfolio is composed of 20
stocks, the top 5 of
which are Total SA (TOT), General Mills Inc (GIS), Sanofi (SNY), AT&T Inc (T), and Intel Corporation (INTC).
The portfolio is composed 100% of large-cap equities, 42% of which are
classified as Value, 48% Core, and 7% Growth. Energy, Healthcare, and Technology sectors make up 58% of
the
portfolio. Its P/E ratio and P/B ratios are 88% and 83% of the S&P
500’s, respectively, and
its dividend yields 89% more than the S&P 500.
About Sawyer Investment Management Company:
SIMCO
is a Texas-registered Investment Adviser with its principal place of
business in Dallas, Texas. It was formed on January 1, 2015 and is
wholly owned by Ryan Sawyer, who is a CFA Charterholder and a Certified
Public Accountant.
SIMCO specializes in the
construction of equity portfolios, and is therefore an ideal resource
for long-term investors. The firm goes through a rigorous process for
selecting each and every holding in the portfolio. Rooted in the
empirical research of academia, the portfolios are generally
characterized as large-cap value momentum. For more information about
how the portfolios are managed, see our website.
The authors want to explore which of the commonly used models best explains the cross section of returns of the Australian stock market. The commonly used models in the US are the Fama-French 3-factor model, which includes market, size, and value factors. Another model is the Fama-French-Carhart model, which adds momentum. They also want to explore how liquidity and the US market influence the returns of the Australian stock market.
First, by using the 4-factor model, they find that the Australian value and momentum factors significantly explain the returns; however, none of the US factors are statistically significant in explaining the returns. Although the authors do find a high correlation between the US factors and the AUS factors; most notably, the market factor of the US is 0.72 correlated with the AUS market factors.
To dig deeper into the influence of the US market, the authors create another model that includes the 4-factor model for the US and the 4-factor model for the AUS (orthogonalized) into a single model. They then compare the 3-factor, AUS 4-factor, combined model, and combined+liquidity factor model. They find that the alphas of each of the models is statistically unlikely to be zero; therefore, we could conclude that none of the models' factors fully explain the cross section of returns in the Australian stock market. Although the R^2 of the combined model is 0.76 and provides the best fit when compared to the other models.
Next, the authors explored the factor coefficients and t-statistics in each of the 25 portfolios (created in line with the Fama-French method) for the combined model. They find that approximately half of the portfolios have statistically significant alphas; in particular, the largest capitalization and highest book-to-market portfolios have insignificant alphas and might pass the Merton zero-alpha test. The AUS market-beta is significant for all portfolios, the AUS size beta is significant for most portfolios, the AUS value factor is significant for only the high book-to-market portfolios, and the AUS momentum does not explain returns across many of the portfolios. The US market, size, and value factors significantly explain the returns of most of the portfolios, although the US momentum factor does not.
Next, the authors added a liquidity factor to the combined model. They find that the coefficient on the liquidity factor was not statistically significant for most of the portfolios.
Next, they perform a Wald test for the US factors, which measures whether each of the factors is jointly significant in each of the 25 portfolios. They find that all the US factors (i.e., market, size, value, and momentum) significantly explain the returns of the AUS stock market; however, they find that the liquidity factor does not add much explanatory power to the model.
Finally, the authors sorted the portfolios by the Brailsford portfolio/factor construction method (which is a bit different than the Fama-French method used before); they find the US 4-factor model is the only one with an insignificant GRS, so it seems to be the best at explaining the returns of the AUS stock market.
Durand, R. B., Limkriangkrai, M., Chai, D., & Gallagher, D. (2016). The Australian asset-pricing debate. Accounting & Finance, 56(2), 393–421
