|
||||||||
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Ford Special Study is a periodic publication included with all annual subscriptions. Each special study typically includes an in-depth report on the development and testing of an indicator or model, or current and historical trends in Ford data and the markets.
Are Federal Reserve Cuts Healthy for the Stock Market? - March 24, 2008 Improving Portfolio Returns with a Valuation Band Overlay - December 29, 2006 Ford Model Performance on Foreign Companies - May 31, 2006 Price Momentum - a Predictive Model for Style and Sector Performance - Oct. 31, 2005 Impact of High Aggregate PVA on Market Performance - March 31, 2005 Employing the Value/Momentum Model in a Long-Short Strategy - July 30, 2004 Alternative
Portfolio Applications of Value Momentum Model -February 27, 2004 Change Direction Effect on Earnings Momentum - August 29, 2003 Industry Effects on Price Momentum - April 30, 2003 Stock Selection Performance - January 31, 2003 Using P/E Ratio Standard Deviation Bands - December 31, 2002 Price/Momentum
Sector Analysis - April 30, 2002 Are Federal Reserve Cuts Healthy for the Stock Market? - March 24, 2008 It is commonly held financial wisdom that lower interest rates are positive for the stock market. The ability for investors to move from lower yielding bonds to stocks, the positive cash flow impact to companies that have debt on their balance sheet and the stimulus effect of lower capital costs on investment are a few of the reasons cited for the relationship between lower interest rates and upward moves in equity prices. This study examines the impact of multiple reductions in Federal Funds rate targets on general market direction and on subsets of equities categorized by industry, quality, and company size. It also looks at the effectiveness of some of Ford's proprietary stock selection factors in an environment of declining rates.
Improving Portfolio Returns with a Valuation Band Overlay - December 29, 2006 In certain instances, select firms ranked highly by Ford’s proprietary models or ratios underperform valuation expectations. These firms are often at or near the top of their valuation bands as represented in the Ford Custom Graphs application. This study examines the effectiveness of using a 36-month valuation band (based on Ford’s Operating Earnings Yield) to help identify extreme highs in historical relative value, thereby improving investment strategies. Across the entire Ford universe, stocks trading at prices more than 2 standard deviations above their average level, measured relative to their 36-month mean OEY, underperform their peers. Alternatively, companies with current valuations more than two standard deviations below their average valuation levels outperformed the Ford universe 5 out of the 8 years measured. This analysis was repeated amongst varying market capitalization groups, Ford’s Selected Stocks, and a portfolio utilizing top VMO candidates. Ultimately, the distribution of returns across these equity groups signaled a correlation between level of valuation and future performance. Several screenshots from Ford Custom Graphs are included within this study to graphically illustrate the relationship between extreme high historical relative value and subsequent stock price performance.
Ford Model Performance on Foreign Companies - May 31, 2006 This study addresses growing interest in U.S.-traded foreign companies (American Depositary Receipts or ADRs) and examines the effectiveness of Ford’s valuation models and proprietary ratios against this universe of companies. Average annual return, from 2001 to 2005, was presented by quintile for each of the following models and ratios: Price-to-Value (PVA), Operating Earnings Yield (OEY), Price/Normal Earnings Ratio (PER), Earnings Momentum (EMO), Earnings Trend (SED), Price Momentum (PMO) and Value/Momentum (VMO). The 5-year annualized performance for the top quintile of each metric outperformed the foreign company universe over the same period. Share Buyback (SHB), indicating a reduction in shares outstanding and usually signaling above average performance, also performed similarly to Ford’s SHB analysis across the entire Ford universe. Investment managers seeking international portfolio diversification, or those who are interested in Ford’s ongoing equity research capabilities, will find this study to be a valuable resource. Ford’s universe of ADRs has nearly doubled since 2001 to approximately 260 firms in early 2006.
Price Momentum - a Predictive Model for Style and Sector Performance October 31, 2005
In previous Special Studies Ford demonstrated the success of its Price Momentum model in predicting individual common stock performance. This study expands upon that analysis and seeks to determine if a similar predictive model applies to complete groups of stocks: large vs. small capitalizations, value vs. growth and Ford’s 15 Macro Industry groups. Although the strongest price momentum factors varied, historical price performance was able to predict future performance among each of the abovementioned groups of stocks. The top industry sector in particular produced an average annual excess return of 10.5% over the Ford universe from December 1994 until December 2004. Further growth in excess return, as well as improvement in the consistency of the return distribution, was achieved by combining the top three quintiles of each momentum measure. Quantitative portfolio managers interested in alternative portfolio selection methods will find this study useful.
Impact of High Aggregate Price to Value Ratios on Market Performance March 31, 2005 This study examines market performance following extreme high aggregate Price-to-Value levels across the entire Ford universe as well as small, mid and large capitalization firms. Extreme high aggregate levels of Ford’s Price-to-Value ratio (PVA) often indicate extended poor performance of the broad market or specific market sectors. Average aggregate PVA across the Ford universe equaled 1.15 from December 1974 to December 2004. Equally-weighted performance was recorded in 6-month, 1-year and 2-year periods beginning when the average universe PVA exceeded its upper one standard deviation band. Because it is difficult to identify peak average PVA, additional start criteria was implemented resulting in more consistent market movement predictions. This analysis was repeated for small, mid and large capitalization sectors. PVA is computed by dividing a company’s stock price by Ford’s proprietary intrinsic value. Ford’s proprietary intrinsic value model incorporates a firm’s earnings, quality rating, dividends, projected growth rate and prevailing interest rates.
Employing the Value Momentum Model (VMO) in a Long-Short Strategy July 30, 2004 Is it possible to improve risk adjusted returns by selling short those stocks ranked lowest by Ford’s Value/Momentum model? This study examines the effectiveness of a combined Long-Short portfolio that implements the aforementioned strategy. Due to the Value/Momentum (VMO) model’s tendency to overweight certain industry groups, Ford’s 15 Macro Industry Sectors were ranked by VMO individually. The top two stocks from each sector were selected for the portfolio’s long position while the short position comprised the bottom two stocks from each sector (totaling 30 long and 30 short positions equally-balanced across each industry group). Over the 20-year period shown, the combined Long-Short portfolio generated superior risk adjusted returns as compared with a similar long position. In recent years however, the strength of a VMO based Long-Short portfolio strategy weakened as the year 2003 in particular proved difficult for quantitative strategies. Individual performance results (annual return, standard deviation, and Sharpe Ratio) for both the long and short portfolios are also presented in this study.
Alternative Portfolio Applications of Value Momentum Model - February 27, 2004
This study examines the effect of capitalization and sector concentration on Value/Momentum model performance. While applying the Value/Momentum model to Ford's high quality universe has shown excellent results, the model can be applied to other discreet universes to generate excess returns and low volatility.
The Value/Momentum model is a flexible tool that can provide excellent results as a final stock selection method across market capitalization sectors or to create a universe of attractive candidates on which to run an alternate process. While containing a bias toward the selection of stocks in the financial industry, the Value/Momentum model works well independent of its propensity to select financials. This is true across all market capitalization sectors. Alternative selection methods, such as share buyback and high yield, combine well with a universe limited by Value/Momentum to provide excellent performance.
Stock Selection Performance - January 30, 2004 This study updates and reviews the performance of Ford's Selected Stock List, a model portfolio published monthly since August 30, 1974 in the Ford Investment Review. Stocks are selected from a universe of high quality stocks based on Ford's Value/Momentum model.
Equal dollar investments in the selected stocks have generated an annualized return of 25.6% versus 13.4% for the S&P 500 for the entire timeframe, and have outperformed the S&P 500 for 24 of the 30 years. The report shows the annual returns for the Selected Stock List since its inception. (Performance figures do not include transaction costs, and there is no assurance that future results will equal past performance.)
Change Direction Effect on Earnings Momentum - August 29, 2003 This study examines the impact that declining or increasing earnings have on the effectiveness on Ford's Earnings Momentum Model. Because the original Earnings Momentum (EMO) model measures the change in the rate of change in earnings, it is not dependent on the underlying direction of that change. In this study, the first derivative function was used to create an earnings direction measure. Performance of this direction measure was very good over the 20-year back test period with returns for the top decile of stocks exceeding the Ford Universe of stocks by an average of 4.7% annually. Top EMO stocks were then divided into two groups, those with positive earnings changes and those with negative changes, and performance was measured on each of these groups. Performance of those in the positive category was nearly double that of those companies showing negative changes. Finally, a new variable was created to optimally weight EMO and the new earnings direction variable. Analysts and portfolio managers who are using earnings momentum in their equity selection process will find this an interesting refinement to our ongoing earnings momentum research.
Industry Effects on Price Momentum- April 30, 2003 This study examines the question: Can price momentum be used to identify which industries will be the best performers in the near future? In previous studies we have examined the effectiveness of price momentum rankings across various market sectors. Whether the sectors are defined by size or industry group, it has been generally seen that price momentum does a good job of predicting relative performance within a sector. For this study we created 15 industry groups based on our macro industry classifications for each quarterly period from December 1972 through December 2002. Equally weighted averages of Ford’s price momentum, 1-year historical price gain, and 1-month historical price gain were computed quarterly for each of these industry groups. Each sector was ranked in descending order according to each of the averaging variables and equally-weighted average quarterly performance was computed for each sector. Results showed Ford’s price momentum model works better on a stock by stock basis than as an industry predictor. This is possibly due to the negation of the mean reversion effect of 1-month price gain when averaged across an industry. However, price momentum, defined as historical price gain, works well in predicting industry performance. The evidence suggests that a trading strategy may be employed that takes advantage of industry average effect of price momentum.
Stock Selection Performance - January 31, 2003 This study updates and reviews the performance of Ford's Selected Stocks List, a hypothetical portfolio published monthly since August 30, 1974 in the Ford Investment Review. Equal dollar investments in the selected stocks each month have annualized at 24.7% versus 13.0% for the S&P 500 for the entire timeframe, and have outperformed the S&P500 for 23 of the 29 years. The list also substantially outperformed the S&P 500 in 2000, 2001 and 2002, producing 9.7%, 11.7%, and -2.6% versus -9.1%, -11.9% and -22.1%, respectively. (These performance figures do not include transaction costs, and past performance does not equal future results.) The purpose of the list is to illustrate the usefulness of Ford's models in stock selection. Ford Equity Research also began using the selected stock methodology to manage corporate and pension assets since 1993, with similar results.
Using P/E Ratio Standard Deviation Bands - December 31, 2002 This study examines the effectiveness of measuring a stocks price level relative to its historical price/earnings ratio. Ford's Custom Graph application facilitates this measure by plotting a plus and minus two standard deviations band around the mean price/earnings ratio. The standard deviation bands measure the amount of historical variation from the average P/E. Ford's Historical Performance testing application (HIPER) was used to create portfolios of stocks that had P/E ratios that equaled or exceeded the limits set by the three year standard deviation bands. A table of results is included that shows, screening based on current P/E relative to the P/E standard deviation bands seem to successfully predict future performance when averaged over the twenty year period 12/81 to 12/01. Selecting portfolios of companies hitting the bottom standard deviation band of P/E produced average annual returns that exceeded the Ford universe of stocks return by 8.6%. Similarly, the portfolios of companies hitting the top standard deviation band of P/E posted average annual returns 5.3% lower than the Ford Universe of stocks. On a relative return basis the historical price/earnings bands prove very useful.
Price/Momentum Sector Analysis - April 30, 2002 This study examines Ford’s Price Momentum model’s effectiveness when applied to Industry Sectors, Capitalization Sectors, and industry sector neutral strategies. Price Momentum produced positive excess returns (top quintile of industry sector vs. industry sector) in each of Ford’s 15 Macro Industry Sectors, with the highest in Consumer Goods and Technology and lowest in Oil & Gas, and Utilities. It also produced substantial excess returns, both equal and capitalization weighted, on each of the S&P 500, Mid Cap 400 and Small Cap 600. Holding the model industry sector neutral on each of the indexes also produced substantial excess returns. The Ford Price Momentum model provides analysts and portfolio managers a very robust stock selection tool across all industry sectors, capitalization's and sector neutral strategies.
Stock Selection Performance - January 31, 2002 This study updates and reviews the performance of Ford’s Selected Stocks List, a hypothetical portfolio published monthly since August 30, 1974 in the Ford Investment Review. Equal dollar investments in the selected stocks each month have annualized at 25.8% versus 14.5% for the S&P 500 for the entire timeframe, and have outperformed the S&P500 for 22 of the 28 years. The list also substantially outperformed the S&P 500 in 2000 and 2001, producing 9.7% and 11.7% versus -9.1% and -11.9% , respectively. (These performance figures do not include transaction costs, and past performance does not equal future results.) The purpose of the list is to illustrate the usefulness of Ford’s models in stock selection. Ford Equity Research also began using the selected stock methodology to manage corporate and pension assets since 1993, with similar results.
Value/Momentum Sector Analysis - August 31, 2001 This study examines Ford’s Value/Momentum model’s effectiveness when applied to Industry Sectors, Capitalization Sectors, and industry sector-neutral strategies. Value/ Momentum produced positive excess returns (top quintile of industry sector vs. industry sector) in each of Ford’s 15 Macro Industry Sectors with the highest in Retail Stores and Services and lowest in Oil & Gas, and Primary Process. It also produced substantial excess returns, both equal and capitalization weighted, on each of the S&P 500, Mid Cap 400 and Small Cap 600. Holding the model industry sector neutral on each of the indexes also produced substantial excess returns. The Ford Value/Momentum model provides analysts and portfolio managers a very robust stock selection tool across all industry sectors, capitalization's and sector neutral strategies.
Historical Price/Value Relationships - March 30, 2001 This study examines the average Ford’s Price-to-Value ratio for the entire Ford Universe: Large, Mid, and Small Capitalization sectors, as well as the S&P500 from 1975 to March, 2001. For the past 26 years, the average Price-to-Value ratio for the Ford Universe has ranged between 1.0 and 1.4, with relatively few instances of moving dramatically outside this range. Periods above 1.4 were subsequently followed by the 1981-82 bear market, a mid 1983 to 1985 market consolidation, the crash of 1987 and the recent bust of the dot com/tech bubble. Conversely, periods with ratios below 1.0 were followed by strong market advances, as evidenced by the 1982, 1990 and 1998 bull markets. Small caps reached maximum value in 1986 and have been relatively undervalued since, while large caps hit an all time high of 2.60 at the top of the dot com/tech bubble. The average Price-to-Value Ratio of a large universe or Index can be a highly useful tool for identifying undervalued and overvalued price levels.
Historical Performance Test of Ford Variables - August 31, 2000 This study summarizes the effectiveness of 39 variables from the Ford database in predicting future stock returns. The variables cover a broad spectrum of investment styles including value, growth and momentum. The returns for the top 20% of companies based on each of these variables are compared to relevant universes for 10-year, 5-year, 1-year and year-to-date periods. Detailed quintile analysis is also included for each of these timeframe's. Quarterly updates of this study are presented in the Ford Focus report. Portfolio managers will find this report to be a useful summary of which variables have been effective in selecting the best performers.
Ford Variable Holding Period Returns - April 28, 2000 This study investigates the relationship between excess returns, generated by momentum and value models and holding period. The most effective holding periods for Ford’s earnings momentum, price momentum, value/momentum models and price-to-book ratio was determined by measuring multiple holding period excess returns over a 20 year period. Earnings momentum and price momentum showed the best near-term performance, with returns improving for 6 and 7 months, respectively, after initial selection. Value/momentum and price-to-book ratio showed best returns over a 12-month holding period. Investment managers who are interested in improving their performance through the use of momentum and value models, while minimizing turnover, will find this study useful.
Ford Value/Momentum Model Enhancement - March 31, 1999 This study details the improvement made to Ford’s Value/Momentum model by adding earnings estimate factors to the existing factors of operating earnings yield, earnings momentum and price momentum. The addition of consensus estimate revision data for the current and next fiscal years and standard unexpected earnings score improves performance and consistency over the original model. The top 10% of companies ranked by the enhanced model produced annual returns of 31.4%, exceeding the original model by 280 basis points annually. The study further presents historical back tested results of the enhanced model across capitalization sector, growth sectors and using varying hold criteria. Portfolio managers seeking a robust model that incorporates the best of both value and momentum factors into a single selection measure will find this report valuable.
Turnaround Portfolios - February 26, 1999 This study examines the effectiveness of a method to identify and select stocks that will perform better than the market averages based on a turnaround in operating performance. The simple investment rationale is this: Buying stocks that have shown the best improvement in net income from operations after a period of poor performance, and holding them as long as earnings continue to improve, should provide positive excess returns. The study of 20 stock portfolios that met these criteria over the 20-year period 12/78 to 12/98 validated the assumption, producing excess returns of 6.4% and 8% annually over a broad universe of stocks and the S&P 500 index, respectively. Portfolio managers interested in improving performance through identifying and selecting turnaround stocks will find this study helpful.
Cap Sector Historical Price/Value Relationships - September 30, 1998 This report examines historical price/value relationships over the past 20 years within small, mid and large capitalization sectors. Ford’s Price-to-Value ratio, computed by dividing price by the value derived from a proprietary dividend discount model, has posted a strong track record in selecting individual issues. This study illustrates how aggregate values can be used to predict near term market direction. Buy signals, using average price/value ratio produced average 1-year returns of 32%, 32.5%, and 37.7% for small, mid and large cap sectors, respectively. Investment managers who are seeking a useful method of market timing based on a value style will find this report of interest.
This study illustrates the impact of holding criteria rules on Ford’s selected stock list (a 20 stock model portfolio based on Ford’s value/momentum model). Portfolio returns using holding criteria rules, ranging from holding the top 10% to the top 60% ranked value/momentum stocks, are adjusted for varying levels of transaction costs. Applied to a universe of high quality rated companies, the annual turnover using these holding rules ranged from 515% for the most stringent to 56% for holding the top 60%. The best transaction adjusted returns came when holding the top 30-40% of value/momentum stocks. Investment managers who are interested in the turnover effects on transaction costs and ways to reduce it should find this study useful.
New Value/Momentum Model - September 30, 1997 This report details the development of Ford’s new Value/Momentum model. Ten common and proprietary measures of value, sales and earnings momentum, and price momentum were studied in various combinations using multivariate regression techniques. The resulting model is the weighted average of the ranking of three variables; operating earnings yield, earnings momentum, and price momentum. The report also shows how the new Value/Momentum model can be applied to produce excess returns in small, mid and large capitalization portfolios. Analysts interested in learning about a successful model that combines both value and momentum variables will find this report of interest.
Ford Special - Variations on a Theme: Price to Earnings Ratio - April 30, 1997 This study compares the results of using reported, normalized, operating and expected earnings in P/E Ratios for the past 20 years. The 20 years was also subdivided into 5 year periods and the third 5 year period (12/86 - 12/91) was particularly weak for following a low P/E strategy. The best and only P/E ratio to provide excess returns in all 5-year periods used operating earnings for the last 3 quarters and the current quarter estimate. This ratio was added to the database as Ford’s Operating Earnings Yield. Analysts and portfolio managers trying to gain an edge on stock valuation may want to consider using the trailing 3 quarters and current quarter estimate or Ford’s Operating Earnings Yield.
Industry Group Relative Performance - October 31, 1996 The purpose of this study was to identify which of the five key valuation and momentum variables exhibit the best ability to predict future performance within each of the fifteen Ford macro industry groups. Of the five variables, price-to-earnings was the most effective on a relative basis in 6 of the groups; price momentum and price/book each ranked at the top of 3 groups; earnings momentum was the most effective in 2 groups; and the dividend discount model price-to-value in one. The top quintile outperformed the industry group average in all 15 groups for price momentum, earnings momentum, and price/earnings ratio (14 groups for price/book and 12 for the price to value ratio). Analysts who are looking for factors for industry specific models, will find this study useful.
New Earnings Momentum - April 30, 1996 This report details the development of Ford’s new Earnings Momentum model. The new Earnings Momentum model is based upon Ford’s existing Earnings Trend model. Earnings Trend, which uses the second derivative to measure earnings acceleration or deceleration, has been successful in predicting near-term stock price performance. However, at extreme values, Earnings Trend tends to under perform. The new Earnings Momentum model adjusts the Earnings Trend model for volatility of earnings. The improvement is substantial with top decile returns for the new Earnings Momentum model exceeding the Earnings Trend model by an average of 4.6% annually. Equity analysts with an interest in momentum strategies will find this report useful.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
800-842-0207
| info@fordequity.com
|
