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
The authors are looking at the Vietnam stock exchanges and researching the factor related returns of the stocks therein; specifically, they are looking at the value, momentum, size, and liquidity factors that have been used in other studies in different markets.
In regard to the value factor, they find that portfolios of the top earnings yield companies (i.e., value companies) have returns that exceed those of the stocks with the lowest earnings yields (i.e., growth companies). Most of this excess return comes from shorting growth companies, and works best in holding periods exceeding 9 months.
In regard to the momentum factor, they only find a statistically significant different between past winner and past winners for holding periods of 1-month and 36-months. The authors conclude that momentum is effective; however, we might caution that stance due to the insignificance of the t-statistics. In looking at a chart of the excess returns, though, we see similarities to prior studies in different markets where the momentum returns revert to the mean and are ineffective after 12 month holding periods.
In regard to the liquidity factor, they find that buying liquid stocks and selling illiquid stocks is an extremely effective strategy; buying the top stocks according to liquidity seems to significantly outperform the equal weighted index over all holding periods. This might be due to the Vietnamese exchanges being new, so liquidity is very valuable until the market matures.
In regard to the size factor, they find no significant difference between the returns of small companies and big companies. In fact, they find that the smallest companies underperform the index and the big companies, which is backwards from the normal strategy related to size (i.e., that small companies outperform large companies). This may also be related to the newness of the Vietnam exchanges, wherein, larger companies are much more valuable.
Ming-Chin Chin, & Nguyen Vu Hieu. (2015). An Analysis of Investment
Strategies and Abnormal Returns in the Vietnam Stock Market. Journal of Applied Economics & Business Research, 5(4), 194–208.
The purpose of this paper is to understand the linkages between excess returns and four investment strategies - value, momentum, size, and liquidity - for the Vietnam stock market during the period 2006-2014. The empirical results suggest that a value strategy, such as the E/P and B/P ratios, and momentum
and liquidity strategies are the most successful and generate
significant excess returns, in contrast to the size strategy, which does
not workin the Vietnam stock mark. Therefore, investors who want to
make a profit when investing in the Vietnam stock market should track
published financial information and find winner stocks by referring to value, momentum, and liquidity strategies.
Our current portfolio is composed of 20
stocks, the top 5 of
which are CVS Caremark
Corporation (CVS), Total SA (TOT), General Mills Inc (GIS), Sanofi (SNY), and Intel Corporation (INTC).
The portfolio is composed 96% of large-cap equities, 51% of which are
classified as Value, 38% Core, and 7% Growth. Energy, Healthcare, and Technology sectors make up 66% of
the
portfolio. Its P/E ratio and P/B ratios are 82% and 74% of the S&P
500’s, respectively, and
its dividend yields 82% 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 curious to know which factors in the literature are most robust; so they searched the SSRN database and found the illiquidity, low beta, value, momentum, size, and quality factors to be most studied and relevant. So they performed robustness tests for each of those factors over the 1967-2014 (in the US) and 1987-2014 (in international stock markets) period.
For the low beta factor, they found no statistically significant difference in returns between low beta and high beta stocks in the US. They did however find that the sharpe ratios of low beta portfolios were higher than the sharpe ratios of high beta portfolios. Internationally, there is no significant difference in returns between low and high beta stocks; although as was found in the US, the sharpe ratios of low beta portfolios were higher than those of high beta portfolios.
For the value factor, they found a statistically significant
difference in returns between value and growth stocks in the US. Also, they find that the sharpe ratios of value portfolios were
higher than the sharpe ratios of growth portfolios.
Internationally, there is a significant difference in returns between value and growth stocks as well as sharpe ratios (except in the UK).
For the size factor, they found a statistically significant
difference in returns between small and large cap stocks in the US.
They did however find that the sharpe ratios of small portfolios were not significantly higher than the sharpe ratios of large cap portfolios.
Internationally, there is no significant difference in returns between small and large cap stocks, nor in the sharpe ratios.
For the momentum factor, they found statistically significant
difference in returns between small cap past winner and loser stocks in the US, but not in large cap. They found the same scenario in regard to the sharpe ratio, where small cap past winners outperformed past losers, but large cap past winners did not outperform past losers.
Internationally, they found the same scenario where small cap past winners outperform past losers, but not large cap, on both a nominal and risk-adjusted basis. Japan, however, is not a good place for momentum investing.
For the illiquidity factor, they found a statistically significant
difference in returns between illiquid and liquid stocks in the US.
They also find that the sharpe ratios of illiquid portfolios were
higher than the sharpe ratios of liquid portfolios.
Internationally, there is no significant difference in returns between illiquid and liquid stocks; the same conclusion is reached on a risk-adjusted basis, where illiquid portfolios' sharpe ratios are not statistically higher than those of liquid portfolios ex-US.
For the quality factor, they found no statistically significant
difference in returns between quality and junk stocks in the US. The same conclusion is reached on a risk-adjusted basis, where quality portfolios' sharpe ratios are not statistically higher than those of junk portfolios in the US.
Internationally, there is no significant difference in returns between quality and junk stocks; although the sharpe
ratios of quality portfolios were higher than those of junk
portfolios in Europe ex-UK and Global.
Next the authors look at some more risk measures for each of the factors in long-only portfolios. For large caps, they find low beta portfolios seem to have the least volatility, and momentum portfolios have the highest; small caps are more volatile than large caps, with the value factor being the most volatile. The value factor for both large and small caps has the largest draw-down and period of underperformance (with the exception of quality, which has a 10.8 year period of underperformance).
Next the authors look at some more risk measures for each of the factors
in zero-cost portfolios. They find the low beta and quality portfolios perform the worst in regard to draw-down, volatility and underperformance; this is likely caused from the short side underperforming the market in bull market periods.
Finally, the authors look at which of the factors still provide excess returns after taking into account transaction costs. They find that only the value, small cap low beta, and small cap illiquidity factors still add value after taking into account transaction costs. All other factors erode value when taking into account transaction costs.
Beck, N., Hsu, J., Kalesnik, V., & Kostka, H. (2016). Will Your
Factor Deliver? An Examination of Factor Robustness and Implementation
Costs. Financial Analysts Journal, 72(5), 58–82.
The multifactor investing framework has become very popular in the
indexing community. Both academic and practitioner researchers have
documented hundreds of equity factors. But which of these factors are
likely to profit investors once implemented? We find that many of the
documented factors lack robustness. Size and quality, two of the more
prominent factors, show weak robustness, whereas value, momentum,
illiquidity, and low beta are more robust. Further examining
implementation characteristics, we find that liquidity-demanding
factors, such as illiquidity and momentum,
are associated with significantly higher trading costs than are other
factors. Investors may be better off accessing these factors through
active management rather than indexation.
The authors are looking to see how does liquidity effect the factor returns of stocks in the Johannesburg Stock Exchange over the 1994 - 2011 period. To do so, they setup a univariate regression for factors that are commonly used in prior studies (e.g., value, size, momentum, and volatility); then they compare the factor coefficients of those regressions to the coefficients using a population of large cap stocks only (with market capitalization being a proxy for liquidity).
They find cash-flow-to-price to be the most significant to explain the cross section returns of the population; and its effect actually increases when limiting the sample to large cap companies only. The size effect is somewhat muted when limiting the companies to large cap. Finally, the momentum effect is more pronounced with found to be more pronounced with smaller companies, in line with prior studies. Interesting to note, the market beta in the CAPM formula is statistically insignificant, but is more significant with larger companies.
Next, the authors built a bivariate regression for each of the factors, which includes the dummy variable with one of the coefficients to see what is the net effect to the regression by limiting the population to large caps only. They find that the only statistically significant change is for momentum and value factors (i.e., moving averages, dividend yield, and cash flow to price); for example, by adding liquidity to the sample, the momentum returns of the sample decrease, and by adding liquidity to the sample, the value-related returns increase.
Finally, the authors formed a univariate regression for each of the factors by ranking the stocks by the top 30% and bottom 30% of their factors, and forming a zero-cost portfolio as if buying the top-ranked 30% and shorting the bottom-ranked 30%. Again they find the cash-flow-to-price factor to be the highest coefficient (to the tune of 2% per month excess return) and with the highest t-statistic. Size is found to be negatively related to returns, in line with other studies. In addition, the momentum returns are found to be about 1% return per month, similar to other studies. As was done in the prior regressions in the paper, the authors then limited the population to large cap companies only, and found in all cases the factor-related returns are muted when limiting to large cap only; although, the cash-flow-to-price, 12-month momentum, and book-value-to-market factors still exhibit outperformance at a statistically significant level.
VAN HEERDEN, J. D., & VAN RENSBURG, P. (2016). The Impact of
Liquidity on the Cross Section of Equity Returns on the Johannesburg
Securities Exchange. Economics, Management & Financial Markets, 11(2), 59–86.
The authors are trying to find out what is important to investors when they are deciding which mutual funds to invest in. Ideally, investors should choose the mutual funds with the highest alphas; the problem is that there are many models that calculate alpha using different factors. For example, the CAPM has market return only; the 3-factor model adds size and value; the 4-factor model adds the momentum factor; and the 7 factor model adds industry factors; and the 9 factor model adds a few more).
So the authors regress the returns using each of the models onto the mutual fund flows over their period of study; and they chart the alphas for each of the models in the regression. If investors were adequately assessing the returns of mutual funds, the findings would show that the coefficients on each of the factors is insignificant and the alphas are significant. What they found is that the CAPM is the best model at explaining the flows into mutual funds; so that would mean that investors likely control for the market return when choosing mutual funds, but they don't adequately control for the other factors when assessing manager skill.
Next, the authors isolate the 7-factor model to assess how each of its factors explain the mutual fund flows. What they found is that each of the coefficients is statistically significant and positive; so that would mean that investors do not appropriately control for the factor returns when comparing different portfolios and their managers' skill. The authors also found that the market return factor had the smallest coefficient, which would be in line with the CAPM's alpha being the determinant of choice by investors.
Next the authors considered that maybe more sophisticated investors might control for the factors more adequately than unsophisticated investors. So they split investors into sophisticated and unsophisticated categories based on the distribution channel of the mutual fund purchase, sentiment of the mutual fund, and wealth level of the investors; then they reran the 7-factor regression to see which factors contributed to the fund flows for each investor category. As they expected, they found that more sophisticated investors better control for the factors than do unsophisticated investors when making mutual fund purchase decisions.
Barber, B. M., Xing Huang, & Odean, T. (2016). Which Factors Matter to Investors? Evidence from Mutual Fund Flows. Review of Financial Studies, 29(10), 2600–2642.
Our current portfolio is composed of 20
stocks, the top 5 of
which are General Mills Inc (GIS), CVS Caremark
Corporation (CVS), Total SA, Intel Corporation (INTC), and Exxon Mobil Corp (XOM).
The portfolio is composed 98% of large-cap equities, 52% of which are
classified as Value, 38% Core, and 8% Growth. Energy, Healthcare, and Technology sectors make up 65% of
the
portfolio. Its P/E ratio and P/B ratios are 84% and 86% of the S&P
500’s, respectively, and
its dividend yields 87% 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 interested to know whether the Fama-French 3-factor model (i.e., market, size, value factors) or the 4-factor model (i.e., with momentum added) is better at explaining the 1999 - 2010 returns for stocks of the Amman Stock Exchange in Jordan.
As was done in prior studies, the authors sorted companies into thirds by market capitalization and by book-to-market ratios, and formed 9 equal-weighted portfolios by size and value/growth (e.g., large-growth, medium-growth, small-growth, and so on). They find their results to be consistent with prior studies that found smaller companies have higher returns than big companies, and value stocks have higher monthly returns than growth stocks.
Next, the authors formed a regression of the 4-factor model for all securities in their sample over the same time period. They find the High-minus-Low factor (i.e., Value vs Growth) is the only factor to be statistically significant; all of the other factors' coefficients were not statistically different from zero.
Next, the authors formed a regression of the 3-factor model over the 9 portfolios that were discussed before. They find the market factor to be significant across all portfolios, the Small-minus-Big factor to be significant across all portfolios except the medium sized, and the High-minus-Low factor to be significant across 5 of the 9 portfolios in no discernible pattern. The R-squared ranges from 18% to 83%; the regressions of the larger companies and the growth companies tend to have higher R-squared values. The intercept (i.e., alpha) is not statistically significant in 8 of the 9 portfolios. So we might say that the 3-factor model for the large-sized and growth companies tend to do a pretty good job of explaining the variation in returns.
Finally, the authors form another regression of the 4-factor model over the same 9 portfolios. The authors find that adding the momentum factor to the regression does not improve the explanatory power of the regression. The previous 3 factors' coefficients remain substantially unchanged in magnitude and significance. Only 3 of the 9 portfolios boast a significant momentum factor coefficient. Also, the R-squareds did not significantly improve. So we might conclude that the 4-factor model does not do a better job than the 3-factor model at explaining the source of variation in returns for stocks in the Amman Stock Exchange over the 1999 - 2010 period.
Al-Mwalla, M. (2012). Can Book-to-Market, Size and Momentum be Extra
Risk Factors that Explain the Stocks Rate Of Return?: Evidence from
Emerging Market. Journal of Finance, Accounting & Management, 3(2), 42–57.
The existence of momentum returns has long been established by prior studies, but there has not been a definitive reason for why momentum returns occur. The authors suggest the reason is that investors are myopic (i.e., nearsighted), and that speculators may overweight public information and underweight private information, which would result in prices taking longer to reach their true fundamental value and for more short-term information to drive prices. In addition, institutional investor myopia may result from short-term incentives, producing price drifts similar to those found in behavioral models.
The authors took many countries and ranked them according to their level of cultural myopia. Then they compared that myopia index to the level of momentum returns in each of the countries. In doing so, they find that countries that tend to be myopic usually have higher momentum returns.
Next, the authors ranked and split the countries into 3 equal groups, then simulated forming equal-weight portfolios of countries for the "Myopic" third, the "Neutral" third, and the "Long-Termist" third. They find that the myopic portfolio has much higher momentum returns than the long-termist portfolio over the 1988-2015 period. So we might argue that countries that are culturally more myopic might have higher momentum returns, so the level of myopia of investors might explain momentum returns.
Finally, the authors form regressions of momentum returns and control for other factors that have been found to be related to momentum returns in other research. The authors find that despite controlling for many other factors, the myopia factor is still significantly related to momentum returns.
Docherty, P., & Hurst, G. (2018). Investor Myopia and the Momentum Premium across International Equity Markets. Journal of Financial & Quantitative Analysis, 53(6), 2465–2490.
Our current portfolio is composed of 20
stocks, the top 5 of
which are CVS Caremark
Corporation (CVS), Kellogg Company (K), Dominion Energy (D), Medtronic plc (MDT), and Sanofi (SNY).
The portfolio is composed 100% of large-cap equities, 47% of which are
classified as Value, 35% Core, and 17% Growth. Consumer Defensive, Healthcare, and Technology sectors make up 65% of
the
portfolio. Its P/E ratio and P/B ratios are 98% and 112% of the S&P
500’s, respectively, and
its dividend yields 47% 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 CVS Caremark
Corporation (CVS), Kellogg Company (K), Dominion Energy (D), Medtronic plc (MDT), and Microsoft Corporation (MSFT).
The portfolio is composed 100% of large-cap equities, 46% of which are
classified as Value, 33% Core, and 20% Growth. Consumer Defensive, Healthcare, and Technology sectors make up 61% of
the
portfolio. Its P/E ratio and P/B ratios are 82% and 100% of the S&P
500’s, respectively, and
its dividend yields 42% 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 Schlumberger Ltd (SLB), CVS Caremark
Corporation (CVS), Kellogg Company (K), Adobe Systems (ADBE), and Microsoft Corporation (MSFT).
The portfolio is composed 100% of large-cap equities, 41% of which are
classified as Value, 42% Core, and 16% Growth. Energy, Healthcare, and Technology sectors make up 57% of
the
portfolio. Its P/E ratio and P/B ratios are 83% and 89% 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 Exxon Mobil Corp (XOM), CVS Caremark
Corporation (CVS), Adobe Systems (ADBE), AT&T (T), and Microsoft Corporation (MSFT).
The portfolio is composed 100% of large-cap equities, 32% of which are
classified as Value, 49% Core, and 20% Growth. Energy, Healthcare, and Technology sectors make up 67% of
the
portfolio. Its P/E ratio and P/B ratios are 77% and 79% of the S&P
500’s, respectively, and
its dividend yields 77% 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 25
stocks, the top 5 of
which are CVS Caremark Corporation (CVS), Total SA (TOT), Exxon Mobil Corp (XOM), Adobe Systems (ADBE), and Microsoft Corporation (MSFT).
The portfolio is composed 100% of large-cap equities, 23% of which are
classified as Value, 57% Core, and 21% Growth. Energy, Healthcare, and Technology sectors make up 70% of
the
portfolio. Its P/E ratio and P/B ratios are 75% and 79% of the S&P
500’s, respectively, and
its dividend yield is 68% higher than that of 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.
