Evidence Based Investing

There is a wealth of academic research into what drives expected returns. Expected returns depend on current market prices and expected future cash flows. Investors can use this information to pursue higher expected returns in their portfolios.

1. Beta

Beta is a measure of the volatility a security or portfolio compared to the market as a whole

2. Value (HML) 

A value stock is trading at levels that are perceived to be below its fundamentals.  Common characteristics of value stocks include high dividend yield, low P/B ratio, and a low P/E ratio.  A value stock typically has a bargain-price as investors see the company as unfavorable in the marketplace.

3. Size Small Company (SMB)

A small cap is generally a company with a market capitalization of between $300 million and $2 billion. Small-cap stocks tend to outperform those with a larger market cap.

4. High Profitability

Profitability is ability of a company to use its resources to generate revenues in excess of its expenses. In other words, this is a company’s capability of generating profits from its operations.