20200224-Style_Analytics-Factor_Performance_Report__JAPAN_22页_1mb

Factor Performance Report Summary - Japan

Introduction

This report provides an analysis of the performance of 23 individual equity factors in the Japanese market as of January 2020. The goal is to evaluate how these factors have contributed to the relative returns of portfolios over different time frames. Style Analytics, a global software provider with over 20 years of experience, offers these insights to help investment professionals make informed decisions.

Methodology

• Factor Portfolio Construction: A single factor portfolio is created by sorting equities in a region by a specific factor (e.g., Book to Price) and selecting the top 70% of the market by market capitalization.
• Performance Measurement: The monthly returns of the factor portfolio are compared to the overall market returns.
• Time Frames: Performance is analyzed for 1 month, 3 months, 6 months, year-to-date (YTD), and annualized periods over 1, 3, and 5 years.
• Adjustments:
  • For single-country regions (e.g., US), "Sector Adjusted" analysis is used.
  • For multi-country regions (e.g., Asia Pacific), "Country and Sector Adjusted" analysis is applied.
• Consistency: The same methodology is applied to all factors to ensure relative comparisons are accurate.

Core Factors Covered

Value Factors

• Book to Price: Ratio of book value to share price. A successful measure of intrinsic value.
• Earnings Yield: Annual earnings per share divided by share price. Reflects company's ability to support each share 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: Net sales per share divided by share price. Less susceptible to manipulation than other valuation criteria.
• EBITA to EV: EBITDA divided by Enterprise Value. EBITDA is earnings before interest, taxes, and depreciation.

Yield Factors

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

Growth Factors

• Earnings Growth 5Y: Average annual growth rate of earnings over the past five years.
• Sales Growth 5Y: Average annual growth rate of net sales per share over the past five years.
• Forecast Growth 12M: Consensus forecast of earnings growth for the next 12 months.
• 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 common equity. Measures profitability relative to equity.
• Net Profit Margin: Net income divided by net sales. Assesses potential for profitable growth.
• Low Gearing: Negative of debt to equity. Indicates lower financial risk.
• Earnings Growth Stability: Negative of standard deviation of earnings growth over the last three years.
• Sales Growth Stability: Negative of standard deviation of sales growth over the last three years.

Size Factors

• Market Cap: Market capitalization of the stock. Used to assess the average size of securities in a portfolio.

Volatility Factors

• Market Beta: Slope coefficient from the regression of security returns against market returns. Measured over a 36-month period.
• Daily Volatility 1Y: Standard deviation of daily total returns over the last year, expressed as an annualized percentage.
• Volatility 3Y: Standard deviation of total returns over the last 36 months, expressed as an annualized percentage.

Momentum Factors

• Momentum ST: Weighted average of the past 6 months of monthly returns, with a decay ratio of 2/3 per month. Measures performance trend following.
• Momentum 12-1: Total return over the last 12 months, excluding the most recent month to avoid reversal effects.
• Forecast 12M Revisions: Percentage of earnings forecast revisions over the next 12 months. Calculated as the difference between upward and downward revisions.

Key Information

• The report includes visual data for each factor across various time frames, with the market cap always set to the top 70% of the Japanese market.
• Adjustments are made to isolate factor impacts from sector and country effects.
• The methodology is consistent across all factors, allowing for meaningful comparisons.
• Style Analytics provides tools and insights to investment professionals in over 30 countries, serving more than 280 institutions.

Conclusion

This report offers a comprehensive overview of the performance of equity factors in the Japanese market, providing actionable insights for investment professionals. By isolating factor impacts and using consistent methodologies, it enables a clearer understanding of how different factors contribute to portfolio performance over various time horizons.