On Balance
There are many reasons why our Smart Alpha process works so well and stands up to scrutiny.
We start with the investible universe and immediately ‘knock out’ the stocks we don’t want to own. Stocks are initially selected by Factor – a ‘bottom up’ selection process.
As regular readers know, we like a sports analogy and so let’s think about horse racing for a moment. As a person who goes racing twice a a year for a good day out, I don’t follow racing like I follow other sports. I don’t research the race card before attending and yet I place […]
Constructing a successful investment portfolio requires not only a consistent measure of current values and forecast expected returns across the investible universe but also a clear understanding of what are the causal drivers of these expected return factors. At Libra we offer clients access to this proprietary content via the Apollo EDGE platform but we have also created our own Smart Alpha Strategy which is also available on request.
Since we ‘called the bottom’ for the sector as you can see from the blog comment on April 14 and the Apollo Margin of Safety chart, the SX7P has rallied from €140 to €157 (12%) but as of today, the sector has not only come back to value (the Apollo FV for the sector is €157.35) but broken above that level and the upper boundary of the FV range.
The Travel sector entered the re-rating phase on January 10 and since then the good news has just kept coming. When Factor risk changes you need to know especially when accompanied by our idiosyncratic signals of momentum and volatility (Accelerator and Risk Adjusted return signals). This combination forms the basis of our Smart Alpha strategy and why it works as well as it does. For as long as the sector is re-rating and there is an Acc long signal you know you are in a good place and when it changes, the dynamics of the stock / sector / market change.
The story of this sector has been one that demonstrates perfectly the Apollo Investment Cycle as we have seen the move from Value to Re-rating and Growth. We now have a group of low volatility Re-rating and Growth stocks – otherwise known as Quality and as we look at the group today we see the majority showing Accelerator Long signals to fully support the investment case that investors have been buying into.
What we witnessed was the market re-rating the sector, taking it from trading at extreme discount to FV in October 2022, to trading at historically high premium in late February / March 2023 – an extraordinary re-rating to a point where red flags in the form of the Apollo Risk Adjusted Return signals were appearing.
Outside of Banks the clues at a stock, sector and market level that give guidance to investors as to what to do or not do right now are few and far between. Both the S&P 500 and Stoxx 600 are no longer in the re-rating phase of the Apollo investment cycle and that points to more volatile times and as a consequence many sectors have transitioned from Re-rating to De-rating or Value
The consequence of recent events (SVB) meant that the market had to reconsider the discount rate being applied to future cash and the repricing meant the sector has come back to the Orange line – FV. A moment that we call ‘back to value’ – zero premium to present value so surely an opportunity to buy?
One of the most significant investment developments of recent years has been the emergence of factor-based investing as a mainstay of investment management.