20200225-Style_Analytics-Factor_Performance_Report__US_SMALL_CAP_22页_1mb

Factor Performance Report Summary - US Small Cap

Core Content

This report provides an analysis of the performance of 23 individual equity factors in the US Small Cap market as of January 2020. The factors include Value, Yield, Growth, Quality, Size, and Volatility factors, each of which is defined and measured based on specific financial metrics. The goal of the report is to offer transparency and insights into the systematic drivers of portfolio risk and return, enabling investment professionals to make informed decisions.

Main Purpose

• To evaluate the relative performance of equity factors over different time frames.
• To provide a consistent methodology for factor analysis across regions.
• To support asset owners, consultants, and asset managers in building objective and comprehensive factor-based investment strategies.

Key Information

Factor Definitions

Value Factors

• Book to Price (B/P): Ratio of book value to share price. A successful measure of intrinsic value.
• Earnings Yield: Annual earnings per share (adjusted) divided by share price. Reflects company's ability to support shares with after-tax earnings.
• Cash Flow Yield: Annual cash flow per share divided by share price. Captures cash availability as a multiple of share price.
• Sales to Price (S/P): Net sales per share divided by share price. Less susceptible to manipulation but less comprehensive.
• EBITA to EV: Ratio of EBITDA to Enterprise Value. Measures the company's profitability relative to its total value.

Yield Factors

• Dividend Yield: Annual dividend per share divided by share price. Reflects dividend income from share ownership.
• Shareholder Yield: Sum of Net Buyback Yield, Dividend Yield, and Net Debt Paydown Yield. Measures the proportion of company value distributed to shareholders.

Growth Factors

• Earnings Growth 5Y: Average annual growth rate of earnings over the past five years. Clear but subject to reporting distortions.
• Sales Growth 5Y: Average annual growth rate of net sales per share over the past five years. Less subject to manipulation.
• Forecast Growth 12M: Consensus forecast of earnings growth over the next 12 months, calculated pro-rata from the next two annual reporting periods.
• Dividend Growth 5Y: Average annual growth rate of dividends over the past five years.

Quality Factors

• Return on Equity (RoE): Net income after preferred dividends divided by book value of common equity. Traditional measure of growth potential.
• Net Profit Margin: Net income before preferred dividends divided by net sales. Measures potential for profitable expansion.
• Low Gearing: Negative of debt to equity. Indicates lower financial risk and higher quality.
• Earnings Growth Stability: Negative of standard deviation of earnings growth over the past three years. Measures consistency of earnings growth.
• Sales Growth Stability: Negative of standard deviation of sales growth over the past three years. Measures consistency of sales growth.

Size Factors

• Market Cap: Market capitalization of the stock. Used to define the size of the portfolio and benchmark.

Volatility Factors

• Market Beta: Slope coefficient from a regression of security returns against market returns. Measures sensitivity to market movements.
• Daily Volatility 1Y: Annualized standard deviation of daily total returns over the last year.
• Volatility 3Y: Annualized standard deviation of total returns over the last 36 months.

Methodology

• A single factor portfolio is constructed by sorting securities in the selected region based on a specific factor.
• Securities are selected until the aggregate market cap of the portfolio equals 50% of the total region market cap.
• The performance of the single factor portfolio is measured against the entire market for each time frame.
• The same process is repeated for each factor, and results are aggregated for comparison.

Notes on Adjustments

• For single-country regions (e.g., US), data is adjusted using sector averages to avoid conflating factor impacts with sector impacts.
• For multi-country regions (e.g., Asia Pacific), data is adjusted using country and sector averages to ensure accurate factor performance measurement.

Conclusion

This report offers a detailed breakdown of the performance of key equity factors in the US Small Cap market. It provides a consistent and transparent framework for evaluating how different factors contribute to portfolio risk and return. The insights gained from this analysis can be used to validate investment decisions and optimize factor-based strategies.