QAS MODEL PORTFOLIO PROGRAM ALERT
QAS MODEL PORTFOLIO PROGRAM ALERT:
QAS US LARGE-CAP NEW ECONOMY EQUITY STRATEGY IS UP +16.2% YTD
This quantitative model (QAS S-132) is currently exclusively licensed to a US-based investment advisor platform.
“Alpha” is hard to achieve, especially on a consistent basis when market conditions change dramatically several times a year. At QAS, when creating investment strategies we always set the following objectives:
- Maximize alpha by establishing multiple sources of excess return.
- Identify and utilize mechanisms for consistent alpha generation for all market conditions.
- Minimize risk through dynamic position/exposure sizing techniques.
This year was especially challenging for portfolio managers as global equity markets went through significant declines, and many have not yet recovered as of July 2020.
The sell-off in February-March 2020 was definitely “broad-based” as all sectors went down simultaneously. However, the consequent recovery was far from uniform. While the “growth-oriented” technology sector is fully recovered and making new all-time highs, there are several sectors such as financial, energy, industrial and utilities that are still undergoing severe drawdowns.
The QAS S-132 US Large-Cap New Economy Focus Equity strategy is up +16.2% YTD vs. -1.4% SPY (+17.6% Excess Return YTD). This quantitative model is “long-only” and “fully-invested” at all times, carrying a 20 stock portfolio structure.
This relatively high level of excess return (double-digits) has been pretty consistent for several years and across various markets where this algorithm has been implemented.
Now, let’s dive into more details to see all of the differentiating factors that helped us to build this superior investment strategy.
Investment Theme
There is a good “Investopedia” definition of the “New Economy” investment theme:
“New economy is a buzzword to describe new, high-growth industries that are on the cutting edge of technology and are believed to be the driving force of economic growth and productivity. A new economy was first declared in the late 1990s as hi-tech tools, particularly the Internet and increasingly powerful computers, made their way into the consumer and business marketplace. The new economy was seen as a shift from a manufacturing and commodity-based economy to one that used technology to create new products and services at a rate that the traditional manufacturing economy could not match.”
There are multiple reasons why this investment theme attracted our attention: superior earnings, new and innovative products and many more. The main point here is that we want to separate the so-called “New Economy” from the “Old Economy” such as banks, energy, and traditional manufacturing and service companies that currently carry much higher risk levels and much lower upside potential, and therefore attract less attention from younger and progressive investors around the world.
Quantitative Approach
This strategy is based on our proprietary quantitative algorithm that provides multiple layers of analysis including:
- Specific stock selection from a relatively small investment universe of 150 stocks which qualified per various quantitative and qualitative screens (market cap, industry sector, minimum price, QAS risk rating profile).
- Quantitative multi-step monthly rebalancing process that provides us with additional sources of alpha (stock replacement, position size adjustment).
It is clearly visible how the “performance difference” curve is shaped on this Bloomberg <PORT> attribution report reflecting a 6-year time-span. This strategy provides a very consistent alpha generation over time, which is the most important investment objective for us. Our portfolio construction process is truly quantitative, emphasizing emotionless (no human error) and disciplined core principles.
The 10 best-performing holdings in S-132 model as of 07-10-20 are the following:
AAPL
ADBE
AMZN
ATVI
KLAC
MSFT
NFLX
NVDA
SPLK
TSLA
For more information please visit www.qas-service.com.
