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Active equity investing (Fundamental vs quantitative (Fundamental (Define…
Active equity investing
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Bottom up approaches
Value based approach
- relative value
- high quality value
- income
- contrarian
- deep value
- special situation
- restructuring/distressed
Growth based approach
- companies that expected to grow faster than industry/peers
- GARP = growth at a reasonable price (PEG ratio = 1 reasonable, less than 1 => low growth)
Factor based active strategies
- identify factors that can predict future returns and construct portfolio that tilts towards those factors
Equity style rotation
- factor rotation = into one favourable factors
Hedged portfolio approach
- rank stocks by a factor, long top quartile, short bottom quartile
- ignores middle groups
- concentrated
- assumes linear relationship between factor and future returns
- hedge factor is not a pure factor
Long only
- factor tiliting (OW/UW factors)
Activist strategies
Defense
- dual class, poison pill, shareholders rights, staggered boards
Targets
- slower revenue than market
- negative share price momentum
- weaker than average corporate governance
Statistical arbitrage
- stat and tech analysis to exploit pricing anomalies
- take advantage of mean reversion in share prices
Risk
- Stat arb: risk is divergence may not be temporary
- market micro structure: very short term mispricing opportunities
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