The Dimensions of Quality Investing Seminar

Transcription

1 The Dimensions of Quality Investing Seminar High Profitability and Low Investment Factors Boston, March 3, 2015 New York, March 5, 2015

2 Asset managers and index providers are increasingly touting the benefits of quality investing. Such strategies tilt portfolios to high quality stocks, as characterised for example by high profitability, stable earnings or low leverage, which are some of the variables used in practice. However, asset managers and index providers do not use a common definition of quality, and a large variety of approaches exist. The premise of quality investing is that high quality stocks are not sufficiently recognised by the market to increase their price to a level that fully reflects their superior quality - therefore such stocks offer a good investment opportunity. The concept has been traced back to fundamental stock pickers such as Benjamin Graham and Jeremy Grantham. tend to overlap with the profitability and investment factors. Both these factors have been found to be relevant in explaining the cross section of stock returns. Such factors would be straightforward alternatives to ad-hoc definitions of quality used in the asset management industry currently. The advantage of these factors is that they have been widely documented, extensively tested in the data independently by many academics, and thoroughly explained in terms of economic mechanisms underlying the associated premia. This concept will be addressed at a seminar entitled The Dimensions of Quality Investing: High Profitability and Low Investment Factors which will be held in Boston on March 3, 2015 and in New York on March 5, De facto, systematic filtering, which is proposed today by various index providers, aims at obtaining alpha in competition with traditional active managers without necessarily having all the features of active management, including the ability to integrate forecasts on the evolution of equity characteristics, or new factors which could change the perception of these characteristics. For academics and defenders of a beta, rather than an alpha, approach, which is, in our view, the only one compatible with index investment, the quality term refers to a whole new dimension: the factor approach. Rational factor investing does not rely on finding underpriced stocks, but rather seeks to identify factors which lead to systematic risks which investors are unwilling to bear without a commensurate reward. It therefore does not require an ability to pick stocks by processing information in a superior fashion compared to the market. Rather, it tries to identify risk factors with a strong economic rationale, and considerable empirical evidence in favour of a positive risk premium. Interestingly, recent research has identified fundamental characteristics, which are similar to some of the descriptors of quality, namely high profitability and low investment. For example, Asness (2014) notes that quality measures 2 Both these factors have been found to be relevant in explaining the cross section of stock returns.

3 The Dimensions of Quality Investing Seminar Who Should Attend > The first part of the seminar will introduce the high profitability and low investment factors and provide empirical evidence that justifies their usage. > The second part of the seminar will address how to combine low investment and high profitability factor tilts. > The third part of the seminar will present performance comparisons with industry offerings. The seminar is presented in a highly accessible manner by an instructor who combines academic expertise and industry experience. It strikes a balance between exploration of new models and case studies. The seminar is presented in a highly accessible manner by an instructor who combines academic expertise and industry experience. 3 > The programme is intended for all professionals involved in passive investment and active management. More generally, this seminar is intended to be a reference for investment management professionals who advise on or participate in the design and implementation of asset allocation policies, equity portfolio models, and for sell-side practitioners who develop new equity investment solutions. The approach to diversifying the different forms of smart beta is also of great interest for diversified managers and multi-managers. > Past editions of ERI Scientific Beta seminars on equity investment have attracted a large cross-section of buy-and sell-side institutions from forty countries worldwide. Global giants, national champions, and small boutiques were represented by their senior officers and investment specialists. Participants included practitioners with the following functions and from the following types of institutions: Functions Chief investment officers/directors of investments Heads of asset allocation/investment strategy Heads of investment solutions/structuring/financial services Heads of multi-management programmes Equity portfolio managers Risk managers Senior analysts and investment officers Senior investment advisers/consultants Senior research officers Institutions Asset management companies Consultancies Insurance and reinsurance companies Investment banks Pension funds, endowments and foundations Private banks Research firms Sovereign wealth funds

4 Seminar Instructor Eric Shirbini is Global Product Specialist with ERI Scientific Beta. Prior to joining EDHEC-Risk Institute, Eric was a quantitative analyst at UBS, BNP Paribas and Nomura International. During this time he worked on a diverse range of topics including multi-factor models, fundamental stock valuation, equity market indices, portfolio construction and portfolio trading. At BNP Paribas Eric managed a team of analysts who were responsible for the Global Equity Research Database. He holds a BSc and PhD from University College London and an MBA from CASS Business School. Programme > Part 1: Introduction to High Profitability and Low Investment Factors Is there a premium to high profitability and low investment stocks? Empirical evidence Why should the investment and profitability premia persist? Economic rationale > Part 2: How to Combine Low Investment and High Profitability Factor Tilts Making the right stock selection approach Reducing the tracking error Diversification benefits of combining the two factor indices > Part 3: Performance Comparisons with Industry Offerings Strategies used by competitors mixing a systematic approach to stock picking (alpha) with criteria used to define beta An approach which leads to better diversified portfolios and better performance compared to other commercially-available indices 4

5 5 Schedule The seminar will be scheduled as followed: 8:30am-9am: 9am-11:00am: 11am-11:30am: Registration/Welcome Coffee The Dimensions of Quality Investing seminar Refreshments Further Information and Registration Please note that admission to this event is by invitation only. To request an invitation, please contact Séverine Cibelly at or on or click on one of the links below: Venues and Timing Boston Tuesday, March 3, 2015 The Langham, Boston 250 Franklin Street Boston, MA United States New York Thursday, March 5, 2015 The Pierre New York 2 East 61st Street New York, NY United States About ERI Scientific Beta EDHEC-Risk Institute set up ERI Scientific Beta in December 2012 as part of its policy of transferring know-how to the industry. ERI Scientific Beta is an original initiative which aims to favour the adoption of the latest advances in smart beta design and implementation by the whole investment industry. Its academic origin provides the foundation for its strategy: offer, in the best economic conditions possible, the smart beta solutions that are most proven scientifically with full transparency of both the methods and the associated risks. Smart beta is an approach that deviates from the default solution for indexing or benchmarking of using market capitalisation as the sole criterion for weighting and constituent selection. EDHEC-Risk Institute considers that new forms of indices represent a major opportunity to put into practice the results of the considerable research efforts conducted over the last 30 years on portfolio construction. Although these new benchmarks may constitute better investment references than poorly-diversified cap-weighted indices, they nevertheless expose investors to new systematic and specific risk factors related to the portfolio construction model selected. Consistent with a full control of the risks of investment in smart beta benchmarks, ERI Scientific Beta not only provides exhaustive information on the construction methods of these new benchmarks but also enables investors to conduct the most advanced analyses of the risks of the indices in the best possible economic conditions. Lastly, within the context of a Smart Beta 2.0 approach, ERI Scientific Beta provides the opportunity for investors not only to measure the risks of smart beta indices, but also to choose and manage them. This new aspect in the construction of smart beta indices has led ERI Scientific Beta to build the most extensive smart beta benchmarks platform available which currently provides access to 2,916 smart beta indices.

6 For more information, please contact: Séverine Cibelly on: or by to: ERI Scientific Beta HQ & Asia 1 George Street #07-02 Singapore Tel: ERI Scientific Beta R&D 393 promenade des Anglais BP Nice Cedex 3 France Tel: ERI Scientific Beta Europe 10 Fleet Place, Ludgate London EC4M 7RB United Kingdom Tel: ERI Scientific Beta North America One Boston Place, 201 Washington Street Suite 2608/2640, Boston, MA United States of America Tel: ERI Scientific Beta Asia-Pacific East Tower 4th Floor, Otemachi First Square, Otemachi, Chiyoda-ku, Tokyo Japan Tel: