The point is that stocks, and thus, managers are no longer exclusively Growth or Value by Axioma’s definition, which complicates manager research. Bayer is not a Growth, Momentum, or Value stock according to Axioma, a risk model specialist. For example, Is the data of Value, Core and Growth benchmarks exclusive? That is, are there stocks in a growth index that are have negative exposures to a growth factor model? Yes! Bayer AG, BAYER GR, a stock MCM does not own, currently has a -.96 exposure to Axioma Medium-Term Momentum factor, a -.18 exposure to the Axioma Growth factor, and a -.42 exposure to the Axioma Value exposure.
S., Global and Emerging Markets portfolios, some 95 percent of MCM assets under management, plot in the Growth Box.ĭata is very important to Quants and quantitative modeling.ĭata is the most important ingredient for growth investing and in regards to style based factors, but data has become lately more difficult to digest. In practice, managers that change sides of the Zephyr report are referred to as having “style drift.” MCM, since its inception, has promised institutions that our portfolios returns would be “in the Box.” Have they been? Yes! We supply evidence in this report for the past fourteen years that our Non-U. Our clients do not expect our portfolios to become more value-oriented. The MCM portfolios should plot on the growth side (right side) of the Zephyr report. For the record, the low P/E approach need not be a necessary and sufficient condition of a Value manager because earnings are often cyclical, which substantially changes the stock P/E. Our portfolio returns are almost always uncorrelated (less than 0.30) with most asset managers’ portfolio returns. The Zephyr report plot shows that portfolio holdings are consistent with our Global Growth mandate. Do we, at McKinley Capital Management, MCM, believe that a Zephyr Report Growth footprint is important? Yes, we do. If a manager is hired to produce a growth footprint, then it is important that the manager produce portfolio returns that are reported in the growth quadrants on the returns-based Zephyr report.
In other words, our exposures procedures returns that are most highly correlated with larger Growth stocks then with stocks that have other exposures. Most McKinley portfolios reside in the upper-rightside box, stocks tend to be larger and are Growth-oriented. Portfolios plotting in the right quadrants of the Zephyr report denote Growth style portfolios. A portfolio residing in the upper quadrants of the chart show the portfolio has larger-capitalized stocks. A Zephyr report is a four quadrant chart the reports how the portfolio returns compare to its benchmark on the basis of style and size. There are “Value” quadrants and “Growth” quadrants to the Zephyrs report that traditionally have been used to access the “style” footprint of managers. It is relatively easy to think that “Value” managers, traditionally using a low P/E multiple, may be uncorrelated with “Growth” managers that have traditionally used analysts’ revisions or long-term forecasts of earnings. Mangers differentiate themselves by producing returns that are relatively uncorrelated with other managers. Many types of asset managers hold the promise of positive active returns, portfolio returns in excess of the benchmark returns. We deploy both return correlation as well as factor exposure information herein as supporting evidence.
In this edition of A View from the Mountain, we report that despite enhancements to our models in past years and despite significant changes in external risk model definitions, the McKinley Capital portfolios remain consistently exposed to Growth and Momentum factors.