Thursday, October 28, 2021

U/O Applied Indexation …a brief tutorial.

Topical discussions regarding the nature of performance dispersion among Value and Growth equity indexes and, importantly, their constituents often ignore the inherent commonality of component member business segment operations (BSOs) across both baskets. Proprietary research suggests an approach to portfolio strategies isolating the Venn of capital markets offers an opportunity to exploit standard capital market delineations and enhance absolute return performance against respective benchmarks.

In examining the Clean Energy space for instance, introducing a Renewables/Diversified Industrials/Technology sector-themed overlay begins an iterative process creating a latticed framework to lever a combination of competitive market information (e.g., benchmark ETF - PBW) and applied indexation methodology. Corporate profile BSOs replace broad industry nomenclature assignments at this point, differentiated growth rates are observed and portfolio allocations are rationalized to readily improve peer group analytics and valuation.

For reference, 69 PBW (3QTR21) component members are selected from a of total 71 (21 designated industry groups) to develop effective Tier-2 Alpha/Alpha-Beta screens by populating 201 unique placements along 10 segments and 52 BSOs. To illustrate, simply click thru to Q3 b-platform release and replay of ‘<U/O> Applied Indexation …a brief tutorial.’ voiceover slide show (

PBW CY21 -18.9%, YTD performance dispersion: +453.5%/-82.4% (102721). 3Q21 -16.8%; capitalization (weight): Small-cap 25.9%, Mid-cap 48.7%, Large-cap 25.3%.

PBW Fwd (adj.) PE=33.2 Beta=1.4 versus 34.1/1.4, 34.0/1.3, 33.4/1.3 and 27.0/1.3 sequentially. SPX 12-month Fwd PE=21.0 v. 20.5/Q3, 21.4/Q2, 21.8/Q1, 18.3/5-yr (FactSet); CAPE 38.8 from 37.9/38.6/37.6/34.9, mean 16.9 (Shiller).

At Venn’s intersection, sets and subsets of competing interests endure. The dynamic principles of BSOs are three-fold: 1) multinational and Large-cap companies function as benchmark sector/industry/subindustry proxies based on scale (Alpha-Beta), 2) Small- and Mid-cap companies participate as competitive peers (Alpha) and, hence, acquisition candidates and 3) among subsets of 1) and 2) are companies provisioning multiple economic sectors, asset classes and geographies. Successful trading strategies (conventional, systematic, factor-based) and adaptive investable motifs (niche, thematic, megatrend) isolate Value in Growth, and Growth in Value, by aligning the prospective Alpha drivers directly associated with ecosystem and supply chain verticals.

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#Strategy #PortfolioManagement #CleanEnergy #Renewables #BSOs #CorporateFinance #Analytics

Forward looking statements, estimates and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. This content is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. The author's opinions are subject to change without notice. No part of this product, related articles, publications or web-based content may be reproduced in any form or referred to in any other publication without express written permission of Universal Orbit © 2021 and David B. Kleinberg.

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