Value Factor - US

Approach

Systematic value investors face many options when it comes to choosing which value metric to utilize when constructing portfolios. Building on the foundation of commonly used value factors, we also have added composite factors, using a multi-metric approach, to our comparison. For the sakes of this analysis, our composite factors are labelled VC1, VC 2 and VC3. These composite factors include different combinations of the aforementioned ratios. This is largely to accommodate for different investment strategies, especially if targeting specific sectors in specific regions.

Factors Evaluated

The individual and composite factors considered include:

1. Earnings Yield
2. Buyback Yield
3. Shareholder Yield
4. Book to Price
5. Sales to Price
6. Free Cashflow (FCF) to Price
7. EBITDA/Enterprise Value (EBITDA/EV)
8. VC1 (Value composite Factor 1)
9. VC2 (Value composite Factor 2)
10. VC3 (Value composite Factor 3)

Methodology

The portfolios are constructed by selecting the top 10% of the universe. The universe is the largest 500 US equities by market capitalization, and is ranked from high to low by value factors. The portfolio is re-rebalanced monthly, with 20 basis points as costs per transaction. Market cap weighting is used here.

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