Alpha Vee Solutions Releases Research White Paper on Controlling Stock Selection Risks in Multi Factor Equity ETF’s
“The effect of fundamental multi factor analysis on risk is demonstrated and some new techniques for performing such analysis are introduced.”
BOSTON, June 13 /PRNewswire/ — Alpha Vee Solutions (www.alphavee.com) Releases Research Results White Paper on Controlling ETF Stock Selection Risks “ The effect of fundamental multi factor analysis on risk is demonstrated and some new techniques for performing such analysis are introduced.“
Executive Summary Stock Selection risk can be defined as the probability that the return of a portfolio composed of individual stocks will be worse from an expected benchmark. Historically, this type of risk has been the most commonly considered risk by investors. Modern investment products, such as multi factor ETF’s that follow the benchmark index, can attempt to neutralize this risk and let the investor concentrate on sector and market risks only (discussed in previous articles in this series). Despite this trend, there is still a lot to be gained by controlling the stock selection risk. The legendary investor, Benjamin Graham, was quoted as saying: “invest only if you would be comfortable owning a stock even if you had no way of knowing its daily share price.” His statement can be translated in modern terms to advocating fundamental analysis over technical analysis. Indeed, this is the preferable approach by professionals and it is the best method for controlling the stock selection risk. In this research, the effect of fundamental analysis on risk is demonstrated and some new techniques for performing such analysis are reviewed.
Scope This is the fourth and last article in a series which deals with controlling risks in equity investment with a focus on using Smart Beta ETFs. Over the past 15 years, the Smart Beta ETF industry has grown from nearly null to about half a trillion USD. The first article in the series reviewed four main risk components: Market, Sector, Currency and Stock Selection. The second and third articles reviewed the market and sector risks and how they can be controlled. In this article, we delve deeper into the stock selection risk and show how data driven tools can provide some protection against uncontrolled stock picking.
About Alpha Vee Solutions Ltd. Alpha Vee is a global independent investment strategist. Alpha Vee licenses a wide range of dynamic and smart beta multi factor indices to leading asset managers for global product distribution. Alpha Vee also offers its research technology platform as well for limited SaaS research use. For more information on the web at www.alphaVee.com or email at [email protected]
About Alpha Vee Market (AVMI) and Sector Indicators (AVSI) Alpha Vee licenses advanced dynamic and adaptive indicators for the inclusion into model portfolios, indexes for a wide range of asset managers needs. The Alpha Vee Market indicator (AVMI) guides managers for over and under broad equity market exposures for the US, European and Japan markets. The Alpha Vee Sector Indicator (AVSI) provides over and under weighting guidance by sector. The combination of indicators provide a highly effective tool to identify and capitalize market trends.