The Quantitative Stock Selection (QSS) investment approach is a comprehensive, systematic stock screening process for exploiting market inefficiencies or stock mispricing based on publicly available and audited corporate information.
QSS methodology allows a reliable differentiation between efficient and inefficient markets and informs us which markets lend themselves to active stock selection and where passive indexing is to be preferred.
Proprietary model
The Quantitative Stock Selection investment approach is unique in Switzerland. It has four key advantages over other quantitative or traditional approaches:
- Systematic screening of the entire equity universe and evaluation according to over 120 factors, without using return forecasts.
- Use in measurably inefficient markets only – passive coverage of efficient markets
- Rule-based but dynamic application – ensuring the effectiveness of the factors at every stage of the economic cycle.
- Focused use of the risk budget – no residual risks, as sectors, countries and currencies have a neutral weighting relative to the benchmark.
The factors used can be grouped into the following six categories, which we call «styles»:
| Style | Description |
|---|---|
| Earnings Revisions | |
| Price Momentum | |
| Risk | |
| Quality | |
| Growth | |
| Valuation |
Unique Selling Proposition
Identification of inefficient markets
By tracking over 120 factors, the QSS methodology can identify inefficient markets. Only here can structured active management achieve sustainable added value. Efficient markets, like the market for US or Japanese blue-chips, are covered in a global equities mandate (PARglobal) with cost-effective ETFs.
- Benefit: Reduction in costs and avoidance of negative performance contributions.
Effectiveness thanks to dynamic factor selection
To evaluate equities, we only use factors in which investors differentiate between a low and a high ratio.
- Benefit: The factors used are not fully factored in the current stock price and are therefore effective.
Risk management thanks to dynamic weighting of the style groups
The individual style groups are dynamically weighted based on an economic cycle model that is publicly available and supported by consensus data. As a result, portfolio risk is increased in the upturn stage of the cycle, as the risks that are taken are rewarded. In the downturn stage of the cycle, portfolio risk is reduced, as the risks that are taken are not rewarded.
- Benefit: Smoothing of performance thanks to participation in rising markets and defensive positioning in falling markets.
Focused use of the risk budget
The portfolio is positioned to be neutral to the benchmark in terms of sectors, countries and currencies.
- Benefit: Relative performance against the benchmark results entirely from stock selection.
Flexibility
We can also take a client’s individual preferences into account where requested. For example, equity portfolios can be created with low volatility, a high dividend yield and low-priced value stocks by giving the corresponding styles a higher weighting.
