Fund Strategies For 2011

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. (Click the Model Name to download the academic research papers on which our strategies are based). 



  • Variant of Joseph Piotrosky's Value Investing: The Use of Historical Financial Statement Information to Separate Winner from Losers working paper
  • Uses published accounting numbers to separate future winners from losers; significantly improves mean returns and variance
  • Selects stocks based on nine factors measuring profitability, changes in capital structure and operating efficiency

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

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

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.