Tailored or Generic Research-backed Portfolios

ValuAnalysis developed a proprietary methodology called "economic Return on Capital" (or eRoC) to determine the level of economic franchise (sustainable cash flow generation) as well as the relative cheapness of a firm (in terms of CF multiples). Using these metrics, it is possible to compare companies in different markets, sectors or even economic cycles.

ValuAnalysis helps build portfolios for third party institutional investors using its extensive database of research-based metrics. The value added of this information can be seen in the examples of portfolios shown in the next pages. Most strategies are systematic (using the eRoC in a 'rules-based' fashion). Active managers can also use eRoC to screen multiple stocks or identify potential alpha-generating trade ideas.

 

The value of Economic Data vs. Accounting Data

Low Economic & Accounting P/E Relative to a Global Benchmark

 

 

  • This chart shows the relative performance of two cheap multiple strategies, one computed with accounting data, the other with ValuAnalysis' corporate economic data.

 

  • Even though both outperform, accounting information gives a tepid performance and seems to be prone to occasional breakdowns, as in the recent past.

 

  • The cheap multiple strategy based on economic data has a clearer, superior and more stable outperformance pattern, and has added 320 bp of relative performance per annum to the accounting-based strategy.

 

An Integrated Process Leading to a Coherent Portfolio

 

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Common Sense Stock Selection: Avoiding the Worst Investments

 

va00000 chart rent yield

 

  • It is often a bad idea to invest in low cash yielding businesses. This is the lesson of the above chart, where the periods of outperformance of a high yielding portfolio do exist (see mid 2006 to mid 2008) but are dwarfed by the downward trend of the low yielding portfolio.
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  • It is always a bad idea to overpay for an asset. This is, in essence, the lesson of the above chart. A portfolio made of the more expensive stocks has never outperformed consistently since 2006.