Value investing is struggling to remain relevant. The main reason is the inexorable rise of hard-to-analyze intangible assets (The Economist, Nov 12th 2020). It is a fact that on average, value based strategies underperformed benchmarks and other active strategies over the last few years. However, there is an opportunity for value investing to step up and generate better returns. Not every good value story will prove to be a rewarding investment in a reasonable time frame. The key is adding an intelligent filter to assess actual price trends across a defined value stocks universe. This allows for a practical, logical discrimination between value stocks in a “Bull” trend, as the market is recognizing the opportunity vs. value stocks in a “Bear” phase, where the current money flow is negative.
Value investors can bring new life and gain an advantage with a disciplined synchronization with individual stocks trends, profiting from an intelligent trend validation across the selected value picks. Incorporating a disciplined trend validation approach as an overlay can greatly enhance returns for Value Investors. Disciplined Trend Validation investing, if based on statistically proven methodologies, can be hugely rewarding.
A research paper, “Fact, Fiction and Momentum Investing”, by Moskowitz, Frazzini, Asness and Israel (2014), shows that managers can improve the efficiency of their portfolios by using investment vehicles which incorporate both Value and Trend Validation strategies. Many types of Trend Validation strategies can be constructed through Trendrating and layered onto Value strategies. We make it easy for fund managers to test any model with our “Strategy Management Solution” product to measure actual impacts on returns. By incorporating the most sophisticated Trend Validation Factor Model in the financial industry, Trendrating is a perfect complement to Value focused strategies.
Better risk control.