Research Papers & Publications
This article examines the performance characteristics of 425 global equity funds over 2012. It is based on funds benchmarked against MSCI World, where Style Research has collected the underlying holdings on a monthly basis. We examine the overall returns, and then decompose these into that due to, in turn, country & currency positions, sector bets, and exposures to eighteen Style factors. We also look at the stock selection results within these groupings.
- Only a quarter of funds outperformed the index over the year
- Most funds benefited from positions in Japan, Germany and Canada
- Funds lost out by underweighting Financials, but gained from avoiding Utilities and Energy.
- Stock selection was weak for the majority in Australia, but better in (global) Industrials and Materials.
- Style pattern reversals over the year proved difficult for most funds. Only positions in Momentum and Earnings Growth were helpful for most managers.
- Individual fund vs. peer group performance attribution charts are available from Style Research upon request.
This research paper, coupled with a webinar, looks at the performance of Global Equity Markets over the first half of 2012 and examines the contributions to performance for Global Equity funds during this period.
- Markets were up 6% in USD terms to the end of June, back to where we were at end 2010.
- Outperforming Sectors include IT, Health and Consumer Sectors. Financials also held up well. Energy and Materials lagged behind.
- The US drove the overall positive return of the market with the Eurozone pulling things back.
- Clear triumph of Growth over Value with Momentum and low Beta also in vogue.
- Majority of funds in peer group underperformed the market over first half 2012.
- From country standpoint, three-quarters did not get the US right, but a majority of funds did position themselves correctly for Japan, Canada and Spain.
- In terms of Styles, Value factors wrong-footed most managers, as did allocation to Size, Beta and Foreign Sales. Those funds with higher allocations to Forecast Growth did well.
- Although stock selection in the US was weak for many funds, managers did add value in Global Small Caps.
It still pays to have a conscience, but you need to be selective – particularly over the shorter term.
Research conducted in the middle of 2011 revealed some peculiar, if not awkward, truths about the success of investing in companies with low Carbon Footprints.
This study examines the sources of performance for Global Equity mutual funds over calendar 2011. It is derived from a series of holdings based performance attribution analyses which are used to determine the most important contributors to performance across funds.
Style Research has been collecting mutual fund holdings data for several years and has now built up a database covering in excess of 15,000 products worldwide. This is used extensively in our Style Research Funds Analyzer service, and we have employed this data in our fund performance research.
In this investigation we separate out the fund returns due to country positioning from that due to stock selection within countries. And we also look at a similar decomposition using the sectors and Styles that were most interesting over the year.
This study examines the sources of performance for UK focused mutual funds (UK All Companies and UK Equity Income IMA sectors) over calendar 2011. We investigate which themes were the primary drivers of fund returns, and how the best performing managers were positioned to benefit from them. Against a backdrop of economic uncertainty and increasing tensions over the Euro and the attendant sovereign debt crisis, 2011 witnessed major swings in sector and Style return patterns. We look at how managers navigated through these difficult waters.
Momentum-based investment can work if investible assets show occasional performance trends. While trending patterns are frequently a result of market imperfections, might they also result from connections to the physical world and non-random patterns, cylces or trends related to physical phenomena? The Carbon Footprint is an example of such a physical connection. This analysis reviews the performance of momentum strategies based exclusively on allocations among sector neutral (very important) portfolios constructed according to company Carbon Footprints in the US, UK and Eurozone.
It is well known that momentum-based investment strategies provide outperformance in markets where the underlying investment assets themselves exhibit performance trending. Since, in most major markets, the basic Style portfolios frequently provide periods of trend outperformance (or underperformance), perhaps simple momentum-based investment strategies can be used successfully to allocate among these basic Styles. This short piece tests this in the US, UK, Eurozone, Japan, Asia Pacific ex Japan and Canada.
Recent research appears to demonstrate a convincing outperformance of equity benchmarks and indices weighted by fundamental factors related to “real” measures of company size, against the more usual constructions based on simple market capitalization weights. This article, covered by both the London Financial Times (Drilling down into the fundamentals – 30 January 2006) and Investments and Pensions Europe (Fundamentalist cause – February 2006), independently corroborates this research in a global context and explores the sources of the impressive history of outperformance.
Presentation given to The Society of Investment Analysts, Ireland; The Hong Kong Society of Financial Analysts; The Security Analysts Association of Japan; The Singapore Society of Financial Analysts; The Securities Institute of Australia (Sydney & Melbourne); The Italian Society of Investment Professionals, February/May 2005.
Published in Investment Adviser, September 2004
The article, published in a UK journal directed towards business development in the European retail investment sector, describes the current popular methods of Style analysis, highlighting their distinguishing features, and recognizing the importance of each in revealing key characteristics of domestic and international equity funds. Returns-based, Holdings-based and Risk-based Style analysis are becoming more and more relevant in profiling equity funds; and competition among fund providers and distributors is increasing their visibility and popularity in this sector.
Published in Investments & Pensions Europe, June 2003
Style techniques have developed considerably since Bill Sharpe”s Returns-Based Style Analysis was first introduced in the early 1990”s. Much as a consequence of the changing needs of worldwide investment professionals, there are now a further three recognized techniques of Style-based portfolio analysis widely available.
This short article reviews how each of these methods emerged and evolved through the decade in response to a growing need for more comprehensive Style analysis features. Each new technique developed to address anomalous market situations and idiosyncratic patterns of investor behaviour. And the most recent introduction, Risk-based Style Analysis, addresses the current need to identify specific investor practices that have appeared following the abrupt Style shifts that have occurred subsequent to the market peaks of early 2000.
Published in Investments & Pensions Europe, November 2000.
Tracking error estimates have, over the past 2 years, significantly underestimated the risks of many “structured” equity portfolios. Much of this is due to the strengthening persistence of the performance patterns of popular Style themes and the impact of this autoregressive, or trending, behaviour on the performance characteristics of portfolios exposed to these Styles.
If the performance of Style-tilted portfolios is measured against Style-based benchmarks (which themselves are tilted towards distinct Styles), much of the systematic underestimation of tracking error risk is eliminated and ex ante tracking errors become closer to the realized ex post measurements. This itself is a very strong argument for the introduction and adoption of Style-based investment benchmarks for Style-based investment portfolios.
Published in the Journal of Asset Management, July 2000.
Study Paper for the AIMR First Annual Global Investors” Workshop, July 2001, Cambridge, England.
Style concepts and Style practices are currently becoming popular within the UK as well as across Europe and the Eurozone. Yet, within these markets, the relevance and usefulness of Style techniques have yet to be demonstrated. The paper reviews the generic range of Style techniques available to practitioners and describes the various, basically commercial, reasons for their recent surge in popularity. In an effort to support current practices (or to put them in doubt), the paper proceeds to develop a general framework, and a set of criteria, for determining the validity of these Style practices within a working environment. This leads to the formulation of a practical definition of what it means to suggest that Style exists within a market.
Based on this definition and formal framework,the paper examines and generally supports the relevance of Style practices across the Eurozone and within a number of major European markets. Style-based techniques are also adapted to consider the “Market Allocation vs. Sector Allocation” question that is currently confronting many top-down Eurozone equity managers.
Published in Investments & Pensions Europe, September 1999.
The article reviews the early evidence of industrial sector convergence and Style convergence within the Euro Zone . Analysis is conducted at the individual country market level and across the total Euro Zone. Consistent patterns of industrial sector performance are clearly evident both before and after the formal introduction of the Euro; and, perhaps even more importantly, there is strong evidence of consistent Style performance across the individual country markets and within the major individual industrial sectors as well.
Style looks to be established as an important management instrument for European equity portfolios.
Published in the VBA Journal, The Netherlands, March 1999.
Style is becoming a recognized feature of European markets. But it is important that investors do not get carried away with enthusiasm. There are clear benefits to Style practices, but analysis is necessary to ensure that the application of Style techniques is justified. The article reviews some important relevance criteria and also addresses the important issue of recognizing Style orientations within European portfolios. Time-series based and Composition based Style analysis techniques are compared. Compositional Analysis appears to offer the more robust and usable analysis.
Published in Investment & Pensions Europe, April 1998.
We can easily construct Pan-European Style indices – we have the necessary data, and also the commercial motivation – but does that mean that these Styles are genuinely useful? Using common-sense criteria much of this scepticism can be put into perspective: many, but not all, of the primary Styles can be clearly identified and are potentially exploitable across the Pan-European market; some Styles unfortunately “washout” at this level of aggregation; but, with EMU approaching quickly, changes are fast occurring.
Style Research Blog
Monthly Style Summary to End April 2013
Developed equity markets made healthy gains over the month. Returns were broadly based across sectors, with very few pockets of underperformance. Japan (continuing its bull run), and Emerging (treading water), received support from Small Growth stocks. Elsewhere, companies with high Dividend Yield remained strong despite stretched valuations. The US provided opportunities for both Value and Growth investors, particularly within sectors.
UNDER THE BONNET: IN CONJUNCTION WITH CITYWIRE GLOBAL
In conjunction with Citywire Global (www.citywireglobal.com), Style Research analyses the driving force behind popular managers in the monthly ‘Under the Bonnet’ feature. In the April edition, we look at the Jupiter European Growth Fund, managed by Alexander Darwall.