20200317-Style_Analytics-Factor_Performance_Report__EMERGING_MARKETS_22页_1mb

Factor Performance Report Summary - Emerging Markets (as of February 2020)

Core Content

This report provides a detailed analysis of the performance of 23 individual equity factors in the Emerging Markets region, comparing their returns to the overall market. The data is presented across various time frames, including 1 month, 3 months, 6 months, year-to-date (YTD), and annualized periods over 1, 3, and 5 years. The analysis is conducted using a standardized methodology to ensure consistency and comparability across factors.

Methodology

• Factor Portfolio Construction: A single factor portfolio is created by sorting equity securities in the selected region by a specific factor (e.g., Book to Price) and selecting the top 50% of the market by that factor. The market cap of the portfolio is capped at 70% of the total region market cap.
• Performance Measurement: The monthly performance of each factor portfolio is measured against the entire market, and returns are linked cumulatively to provide performance data across different time frames.
• Adjustments:
  • For single-country regions (e.g., US), "Sector Adjusted" analysis is used, where individual security data is adjusted using sector averages.
  • For multi-country regions (e.g., Asia Pacific), "Country and Sector Adjusted" analysis is applied, adjusting data based on sector averages within each country.

Key Factors and Their Definitions

Value Factors

• Book to Price: Ratio of book value to share price. Measures intrinsic value.
• Earnings Yield: Annual earnings per share 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. Includes depreciation, amortization, and provisions for deferred liabilities.
• 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. Measures profitability relative to the company's 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 value distribution to shareholders.

Growth Factors

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

Quality Factors

• Return on Equity (RoE): Net income after preferred dividends divided by book value of common equity. Measures profitability relative to equity.
• Net Profit Margin: Annual net income before preferred dividends divided by annual net sales. Assesses potential for profitable growth.
• Low Gearing: Negative of debt to equity ratio. Indicates lower debt burden and higher quality.
• Earnings Growth Stability: Negative of standard deviation of earnings growth over the last three years. Measures consistency of earnings growth.
• Sales Growth Stability: Negative of standard deviation of sales growth over the last three years. Measures consistency of sales growth.

Size Factors

• Market Cap: Market capitalization of the stock. Used to determine the size of the portfolio.

Volatility Factors

• Market Beta: Slope coefficient from a regression of security returns against market returns. Measures systematic risk.
• 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 three years.

Main Points

• The report uses a consistent methodology to evaluate the performance of equity factors, ensuring fair comparisons.
• The "top half" of the market is selected based on the factor, with a market cap cap of 70%.
• Adjustments are made to separate factor impacts from sector and country impacts.
• The performance of each factor is presented for multiple time periods, including short-term and long-term views.
• A variety of factors are analyzed, covering value, yield, growth, quality, size, and volatility.

Conclusion

The report offers a comprehensive overview of how different equity factors have performed in the Emerging Markets region, highlighting their relative strengths and weaknesses. It serves as a valuable tool for investment professionals to make informed decisions based on objective factor analysis.