Attractive Value stocks in 2022
Our value stock methodology can be offered as a certificate, OTC swap or mandate
Selecting stocks based on their fundamental valuation is one of the most important topics in the financial literature. There are multitudes of ways to approach the subject and plenty of material for our frequent readers. Work relevant to this subject can also be found on our site (see here and here).
Though popular by nature, for several years now, this strategy has not worked well in comparison to growth related investments. There are several reasons responsible for that but the strongest and most probable one is related to unconventional central bank policies since the financial crisis in 2008. Since early 2021 we have been proponents of value investing, actively allocating capital for our clients and we continue to do so.
In this paper we present one popular approach that is based on Piotroski scores, adding our own flavor in it backed by backtested results. Our selections start from a sample of 500,000 traded stocks down to a few that satisfy our criteria.
Selection methodology and ranking
We choose to select mid to large cap stocks from US, Europe, Canada, Australia and Japan with good fundamentals as measured by Piotroski score, market liquidity. The only additional filter is momentum so that we avoid good companies that in effect become value traps for the investor.
The resulting set varies between 10 to 60 stocks each month from a complete set of around 500,000 stocks.
Finally ranking is applied using our proprietary methodology that combines Piotroski, volatility and momentum scores.
Back-testing engine
Technology is paramount in financial markets. Our state-of-the art backtesting platform allow us to simulate an investor portfolio with excellent accuracy taking into account transaction costs, stop losses as well as slippage. The framework of simulation is applied since 2017 and is shown below.
Solid results since 2017
The results presented below show how an equity portfolio of value stocks would have performed since 2017. We observe a strong absolute and relative performance with consistent risk profile in a full five year period that included three major sell-offs, end-2018, Covid in 2020 and 2022-Q2.
Explore more @ interactive tools
Results are automatically updated every month in our Interactive Tools site @ https://tools.km3am.com
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