Fund Strategies For 2015-2016

Each year the Fund Mangers perform a detailed study of the state-of-the-art in finance theory. Each strategy is critically analyzed for theoretical soundness, implementability, and performance history. This study results in new candidate strategies, that are evaluated against previously implemented strategies. The new strategies are then carefully executed in parallel with surviving existing strategies.


Analyst Bias

  • Variant of Professor Mark Grinblatt's paper Analysts' Forecast Bias and the Mispricing of High Credit Risk Stocks.
  • The premise of the strategy is that we are able to run a reasonably accurate regression that predicts how excessively inflated or deflated analyst expectations have become on various securities. With this information, (and by focusing on high credit risk companies) by shorting the high-analyst-bias companies and going long the low-analyst-bias companies we should be able to achieve 19% annual alpha. 
  • Modified the strategy to take into account a 4 month data lag and a 6 month holding period of securities to come up with statistically significant alpha in a reverse strategy, going long high-analyst bias companies and short low-analyst bias companies.
  • The reason we feel confident in our reverse strategy (apart from statistics) is because it is reasonable to assume that high-analyst bias companies have their drop in price during our 4-month data delay window, and when we do actually buy them, they are on a mean-reversion/reverse-momentum upward trend. That is the alpha we believe we can capture.

Gross Profitability

  • Influenced by the 2005 research paper, The Other Side of Value: Good Growth and the Gross Profitability Premium, authored by Robert Novy-Marx .  
  • Based on the observation that gross profit has great explanatory power on the cross-section of average returns. Gross profit is also a strong predictor for long-term growth in earning, free cash flow and future gross profit. 
  • Aims to generate excess returns by investing in large-cap stocks with high gross profit-to-asset ratio, as opposed to just high return-on-assets factor (ROA).
  • Added book-to-market ratio as an complementary factor to improve portfolio selection.

Percent Accruals 

  • Percent Operating Accruals is based on the research paper, Percent Accruals, by Nader Hafzalla, Russell Lundholm, and E. Matthew Van Winkle.   
  • General Premise - percent accruals, scaled by earnings, yields larger annual hedge returns

    • Improves position in low accrual stocks
    • Selects firms where the difference between sophisticated and naive forecasts are the most extreme consistent with the earnings fixation hypothesis
    • Scaled by absolute value of net income because it focuses on the composition of earnings distinguishing how much is cash and how much is accrual
  • Percent accruals, scaled by earnings, yields larger annual hedge returns: Percent Operating Accruals = (Net Income - CFO) / |Net Income| 

Tactical Asset Allocation (TAA)

  • Seeks to exploit market price anomalies related to changes in economic variables found to be significant in explaining asset price returns, as described in Advanced Theory and Methodology of Tactical Asset Allocation by Wai Lee.
  • Tactically rebalances asset class weightings away from a pre-determined Strategic Asset Allocation (SAA), which is mean variance optimized using long-dated historical time series of key macroeconomic indicators
  • Tactical asset allocation decisions are made via factor signals shown to be predictive of excess returns for a particular asset class; relative weightings are scaled relative to aggressiveness factors related to the strength of the factor signal

Past Strategies

Fund Mangers in previous ASAM classes have conducted in-depth studies on several other strategies. Detailed findings of their research can be found in the ASAM annual report 2015.


Fundamental Index

  • Influenced by the 2005 research paper, Fundamental Indexation, by Robert Arnott, Jason Hsu, and Philip Moore.  
  • The strategy rejects the notion that market-cap weighted indices are mean-variant efficient as cap-weighted indices inherently overweight overpriced securities and underweight underpriced securities.
  • Seeks to outperform a traditional market-cap weighted index by using alternate measures of a company's economic footprint.  By breaking the "price link" associated with traditional indices, fundamental indices place more weight on securities which are intrinsically less expensive.
  • Takes advantage of correlation effects among alternative fundamental-weighted indices to create a composite portfolio designed to outperform the index on both a total return and risk-adjusted basis.

Earnings Announcement Return (EAR)

  • Based on the academic research paper Earnings Announcements are Full of Surprises by Santa Clara, Brandt, Kishore and Venkatachalam
  • Variation of an earnings drift strategy which seeks to exploit the earnings drift anomaly; attempts to capture all information, quantitative and qualitative, surrounding a company's earnings release
  • Takes long positions in companies whose stocks have experienced the highest quintile of excess returns around earnings announcements