SocGen Graham, Greenblatt Value Screens: A Tale Of Two Markets

SocGen Graham, Greenblatt Value Screens: A Tale Of Two Markets

Results from Societe Generale SA (EPA:GLE) (OTCMKTS:SCGLY)’s value screens show divergence of developed and emerging market pricing and returns. Over the last 12 months ending on June 16, 2014, the MSCI World has gained 17.05% while the MSCI EM has only risen by 9.03%. Such divergence suggests that there may be more value opportunities in emerging markets as there is more space for future gains.

Graham and Rea value screen fell last month for developed markets

Benjamins Graham’s approach in his book, The Intelligent Investor, focuses on paying attention to both making profits and minimizing losses. It points out that market swings should not drive investment decisions, and that investors need to focus on dividends and company performance. Graham also emphasizes acquiring stocks at a discount relative to their true value, as calculated by analyzing profitability and financial position.

Societe General analysts use screening criteria from The Intelligent Investor to choose both long and short positions. For May 2014, the screen posted a loss of 0.2% versus a benchmark gain of 1.4%. The benchmark is comprised of Societe Generale SA (EPA:GLE) (OTCMKTS:SCGLY)’s global developed market universe of stocks with a market cap exceeding USD$100 million (ex-financial). Short positions have outperformed long positions in the last month and last 12 months for the overall screen. The U.S. and Japan have the highest short performance for May 2014, while Europe and Europe’s shorts gained the most over the past 12 months. Short outperformance suggests that markets could be overvalued as expensive names, or shorts, are still gaining.

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Value Screen Global Performance

Value Screen long short performance

Value Screen Largest stocks

Graham Rea gained in emerging markets

Graham Rea screen gained 1.3% last month, with its best showing in Asia with a 3.8% gain. Only one region, Latin America, fell last month. However, over the past 12 months, Latin America has the highest performance with a net gain of 18.7%. Shorts underperformed longs for the last 12 months in all regions. Latin America benefited the most from short’s underperformance, with a 9% gain. Both EMEA and Latin America outperformed the MSCI Emerging Market ex financial for the past 12 months.

value screen emerging markets

Value screen EEM performance

Value screen EEM long short performance

Value screen EEM Largest stocks

Greenblatt’s magic formula value screen gained in both developed and emerging markets

Joel Greenblatt, managing partner of Gotham Capital, defines value investing as determining how much a stock is worth and then buying it at a much lower price. He advocates that accuracy in assessing values will pay off after purchasing undervalued stocks. In most cases, according to Greenblatt, it takes two or three years to determine whether a stock was valued properly.

Two of the main inputs of Greenblatt’s magic formula outlined in his book The Little Book That Beats The Market are return on capital (ROC) and earnings yield (EY). Greenblatt targets firms with the highest ROC calculated using EBIT instead of final net earnings to reduce accounting driven biases and highest EY. Similarly, Societe Generale analysts use these criteria to rank stocks in their screen.

For May 2014, the screen rose 0.6% in developed markets and 1.6% in emerging markets. Euro, U.K., and U.S. drove performance last month. Over the past 12 months, Greenblatt’s magic formula screen rose 7.1% for developed markets and lost 0.8% for emerging markets. Asia detracted from performance in the last 12 months.

Value screen Greenblatt model

Value screen Greenblatt Long short performance

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Value screen Greenblatt EEM Long short performance

Top Greenblatt developed market model names

Value screen Greenblatt model names

Top Greenblatt emerging market model names

Value screen Top Greenblatt emerging market model names

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