20200312-Style_Analytics-Factor_Performance_Report__UK_22页_1mb

Factor Performance Report Summary - UK Market (as of February, 2020)

Core Content

This report provides an analysis of the performance of 23 individual equity factors relative to the UK market, using a consistent methodology across different time frames. The factors are categorized into Value, Yield, Growth, Quality, Size, and Volatility categories, with additional Momentum and Forecast factors included. The report aims to help investment professionals understand the systematic drivers of portfolio risk and return, enabling them to make informed investment decisions.

Main Viewpoints

• The performance of each factor is measured by constructing a single factor portfolio that includes the top 50% of securities sorted by the factor, with the market cap of the portfolio equaling 70% of the total market cap.
• The methodology ensures that sector or country impacts are not confused with factor impacts by using Sector Adjusted or Country and Sector Adjusted data depending on the region.
• The performance is evaluated over various time frames, including Last 1 Month, Last 3 Months, Last 6 Months, Year to Date, and historical years (2015–2019).
• The report also includes annualized performance over 1, 3, and 5 years to assess long-term trends.

Key Information

Factor Definitions

• Value Factors:

  • Book to Price: Ratio of book value to share price, a measure of intrinsic value.
  • Earnings Yield: Annual earnings per share divided by share price, indicating the company's ability to support each share with after-tax earnings.
  • Cash Flow Yield: Annual cash flow per share divided by share price, capturing cash availability.
  • Sales to Price: Net sales per share divided by share price, considered less manipulable.
  • EBITA to EV: Ratio of EBITDA to Enterprise Value, a widely used valuation metric.

• Yield Factors:

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

• Growth Factors:

  • Earnings Growth 5Y: Average annual earnings growth over the last five years.
  • Sales Growth 5Y: Average annual sales growth per share over the last five years.
  • Forecast Growth 12M: Consensus forecast of earnings growth over the next 12 months.
  • Dividend Growth 5Y: Average annual dividend growth over the last five years.

• Quality Factors:

  • Return on Equity (RoE): Net income after preferred dividends divided by book value of common equity, a traditional measure of growth potential.
  • Net Profit Margin: Net income divided by net sales, assessing profitability and expansion potential.
  • Low Gearing: Negative of debt to equity, indicating 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 measure the average size of securities in a portfolio or benchmark.

• Volatility Factors:

  • Market Beta: Slope coefficient from a regression of security returns against market returns, indicating 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 three years.

• Momentum Factors:

  • Momentum ST: Measures the performance trend using a 6-month weighted return history.
  • Momentum 12-1: Total return over the last 12 months excluding the most recent month.
  • Forecast 12M Revisions: Measures the change in earnings forecasts over the next 12 months, expressed as a percentage of estimates.

About Style Analytics

• Style Analytics is an independent, global software provider with over 20 years of experience in factor analysis.
• It serves over 280 investment institutions across 30 countries, offering objective and comprehensive tools for investment professionals.
• The company focuses on transparency through factor exposures, helping professionals validate and make strong investment decisions.

Conclusion

The report provides a detailed analysis of how different equity factors have performed in the UK market, using a consistent and transparent methodology. It highlights the importance of distinguishing between factor impacts and sector or country effects, and offers insights into value, yield, growth, quality, size, and volatility factors. The inclusion of momentum and forecast factors adds a dynamic and forward-looking perspective to the analysis.