SocGen’s developed market quantitative screens cover a universe of global stocks having a market cap of $100M or more and excludes financials.
SocGen analysts Andrew Lapthorne, Rui Antunes, John Carson, Georgios Oikonomou, Michael Suen and Josh Cherian draw attention to the solid gains achieved across all regions during 2013, with their universe up 32.6% on average.
The low-hanging fruit is gone
But this surge had an adverse fallout for investors. “We should first note the remarkable decline in the number of companies that qualify for our quality income and deep value screens. From 116 companies that passed our screens at the end of 2012, we can now only find 38 (22 quality income and 16 deep value companies). This is a result not only of the strong market performance but also of the disappointing profit growth during 2013, which has pushed up equity valuations significantly making good candidates harder to find,” says the SocGen research note.
The Talas Turkey Value Fund returned 9.5% net for the first quarter on a concentrated portfolio in which 93% of its capital is invested in 14 holdings. The MSCI Turkey Index returned 13.1% for the first quarter, while the MSCI All-Country ex-USA was down 5.4%. Background of the Talas Turkey Value Fund Since its inception Read More
One observes that the both graphs in the above chart are down to within handshaking distance of levels seen during the heady, pre-crisis days.
SocGen’s Greenblatt Magic Formula model
Value Investor Joel Greenblatt’s Magic Formula involves buying cheap stocks that have earnings yield and provide a high return on capital.
SocGen’s screen based on the above formula returned 8.3% during 2013.
Interestingly, the top four companies in the overall rankings of Greenblatt model names are from the Consumer Goods or Consumer Services sectors:
Rank#1 – Altria Group Inc (NYSE:MO) (United States)
Rank #2 – Reynolds American, Inc. (NYSE:RAI) (United States)
Rank#3 – DeNA Co., Ltd. (TYO:2432) (Japan)
Rank#4 – Lorillard Inc. (NYSE:LO) (United States)
SocGen’s Graham & Rea Model for value stocks
Value investing legend Ben Graham and aeronautical engineer James Rea developed a formula containing 10 points (five for valuation and five for risk) for building a portfolio around the theme of deep value picks.
SocGen’s model just managed to be profitable in 2013 and returned 1.2%.
The top stocks as per this screen are shown below in this table: