Factors That Drive Market Return

Single Factor Index Strategies

Global Beta Value/Quality Index

The Global Beta Value/Quality Index strategy takes the 100 securities with price-to-sales ratios that fall into the lowest quintile in the S&P 500.  We use their 12-month trailing revenue, relative to each other, to weight the 100 securities. To manage concentration risk, Global Beta Advisors imposes a 5% security issuer cap on the portfolio.

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Global Beta Growth/Momentum Index

The Global Beta Growth/Momentum Index strategy takes the 100 securities with Sharpe Ratios (i.e.: risk adjusted return) that rank in the highest quintile in the S&P 500.  We use their market cap float, relative to each other, to weight the 100 securities. To manage concentration risk, Global Beta Advisors imposes a 5% security issuer cap on the portfolio.

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Global Beta Low Beta Index

The Global Beta Low Beta Index strategy takes the 100 securities with betas that rank in the lowest quintile in the S&P 500. We use their 12-month trailing revenue, relative to each other, to weight the 100 securities. To manage concentration risk, Global Beta Advisor imposes a 5% security issuer cap on the portfolio..

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Global Beta Size Index

The Global Beta Size Index strategy takes the 100 securities with 12-month trailing revenue growth rates that rank in the highest quintile in the S&P 600. We use their 12-month trailing revenue, relative to each other, to weight those 100 securities. To manage concentration risk, Global Beta Advisors imposes a 5% security issuer cap on the portfolio.

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Multi-Factor Index Strategies

From these single factor index strategies, we developed two multi-factor rotation strategies: an all cap multi-factor strategy and a large cap multi-factor strategy. The driving principle in the rotation model is the relative price-to-sales ratio. We agree with the previously mentioned white paper that relative strength based on the price-to-sales ratio best systematically and idiosyncratically positions an investor’s exposure. We believe it is most prudent to align the investor’s portfolio using principles, such as balanced exposure, that position the investor for long-term success.

The rotation is based on each indices’ current price-to-sales ratio relative to its historical moving average. If the current price-to-sales ratio is one standard deviation above the historical average, we assign the index an underweight. We assign the index an overweight if the current price-to-sales ratio is one standard deviation below the historical average. If the current price-to-sales ratio falls within the mean (i.e.: between one standard deviation below and above the historical average), then we assign the index an equal weight. The strategy is a fully invested strategy; therefore, we prorate any excess weight, amongst the four indices. This is what we mean when we say we manage to a normal channel of price-to-sales.

Global Beta All Cap Multi-Factor Index

The Global Beta All Cap Multi-Factor index strategy rotates the Global Beta Value/Quality index, the Global Beta Growth/Momentum index, the Global Beta Low Beta index, and the Global Beta Size index tactically. The rotation is based on each indexes’ current price to sales relative to its historical moving average. If the current price to sales is one standard deviation above the historical average, that index is assigned as underweight. If the current price to sales is one standard deviation below the historical average, that index is assigned as overweight. If the current price to sales falls within the mean (i.e.: between 1 standard deviation below and above the historical average), then it is assigned an equal weight. The strategy is a fully invested strategy; therefore, any excess weight that is not invested based on the aforementioned parameters are then prorated amongst the 4 indexes.

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Global Beta Large Cap Multi Factor

The Global Beta Large Cap Multi Factor index strategy rotates the Global Beta Value/Quality index, the Global Beta Growth/Momentum index, and the Global Beta Low Beta index tactically. The rotation is based on each indexes’ current price to sales relative to its historical moving average. If the current price to sales is one standard deviation above the historical average, that index is assigned as underweight. If the current price to sales is one standard deviation below the historical average, that index is assigned as overweight. If the current price to sales falls within the mean (i.e.: between 1 standard deviation below and above the historical average), then it is assigned an equal weight. The strategy is a fully invested strategy; therefore, any excess weight that is not invested based on the aforementioned parameters are then prorated amongst the 3 indexes.

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Insights: Educational Articles, Commentary and Perspectives

Factor investing isn't a new tactic. In fact, institutional investors have been employing factor research for decades. Many are already executing this investment strategy, whether they realize it or not. We believe, as institutional investors realize lower returns for most asset classes, their need for alpha will have many of them gravitating toward factor investing.

The investment performance of Yale’s and Harvard’s endowments has drawn interest from other endowments and investors alike, but little research has been done on non-profit endowment performance overall, despite the $700 billion in assets they collectively manage. One recent study,  “Investment Returns and Distribution Policies of Non-Profit Endowment Funds"...

Factor investing is a strategy that chooses securities on attributes that are associated with higher returns. From a theoretical standpoint, Factor Investing is designed to enhance diversification, generate above-market returns and manage risk. Learn more about Factor Investing by watching our video here.