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Systematic investor Joanna Nash discusses ways to reduce carbon emissions in portfolios.

“In some of our index focused strategies we can’t divest – so we need to let companies know which issues are important to shareholders.” Find out how investors can enact change from the top down with Realindex Portfolio Manager Joanna Nash.

Rather than being polar opposites, we argue that both value and growth dimensions compliment each other in the valuation process. Growth considerations can be incorporated into traditional value investing. In particular, this paper focuses on a novel method of incorporating growth considerations into a common value workhorse - the dividend yield factor. We show detailed derivations from first principles, and as far as we are aware, this is the first time this methodology has been applied for dividend yield. Our new signal, growth adjusted dividend yield, outperforms ordinary dividend yield across most sectors globally.

We pose the question – what if we could develop a way of predicting which companies are more likely to be suffering distress, and which were not? The idea contains three parts: A. Certain individual observations or metrics can separately tell us about stocks that might – in the near future – find themselves in trouble. B. If we combine enough of these metrics together – without overfitting – we can get synergy between the factors. C. If we build a smart model that is designed specifically to target corporate distress, then we can apply and refine the predictions from the metrics in a better way.

Just like momentum or quality, ESG can be approached as a filterable factor. Find out how it’s possible with Realindex Portfolio Manager Joanna Nash.

In these articles the quantitative investment manager RQI Investors highlights a range of topical issues in financial markets and quantitative investing.

Most of us would have started 2021 with the hope that the worst of the COVID crisis was behind us, and some return to normality was just around the corner. We were quickly dislodged from this hopeful place with new variants of the pandemic virus emerging, ongoing lockdowns and travel restrictions, and vaccination resistance and protests. Nevertheless, the monetary response to the resulting economic downturn has been strong, benefiting all asset classes, especially equities. Here we take a look at how 2021 evolved. The review below is in three parts. Section 1 comments on markets and factors. Section 2 looks at some of the major themes of 2021, including ETF fund flows, ESG, YFYS (“Your Future Your Super”) and macro factors (primarily inflation and GDP growth and their expectations). Section 3 discusses how Realindex has evolved as a business during 2021, and drills down into attribution and performance of our portfolios.

Recent actions by China in Hong Kong and rising geopolitical tensions between China and the US have resulted in the US taking a range of actions including the enactment of the Holding Foreign Companies Accountable Act. One potential consequence of this Act is the forced delisting of Chinese American Depositary Receipts (ADRs) on US exchanges.

The performance of Australian small caps has lagged behind the ASX100 over the last decade leaving many investors questioning whether an allocation to Australian small caps is worthwhile.

Value investing reflects the long term mean reversion of stocks. That is, expensive stocks will on average decline or revert, and cheap stocks will rise or rebound. But why does this happen, and under what circumstances will this effect be greater or lesser?

Following a long period of underperformance, the value style has finally started to deliver strong returns. The drought has broken; long may it continue. Since November 2020, we have seen a strong and consistent rebound of the value style, while growth and momentum styles have trailed behind.

History sometimes provides an insight into the future, and last year was no exception. In this paper, the Realindex team look into the rear view to reflect on markets and macro themes in 2022, including how its strategies performed and how they are placed for the year ahead.

On the surface Value underperformed throughout 2020, but once we remove technology stocks like Tesla and Amazon from the equation, we can see that Value kept up with the broader market. Entering 2021, we are witnessing a strong rebound in Value. How should investors be approaching tech companies?

Late in 2021 we published a Realinsights paper on the long term relationship between inflation and Value style investing. In that paper, we focused especially on whether the recent (and forecast) inflation spike we were seeing on the back of the COVID lockdown and stimulus packages would drive outperformance of Value in the near future. A lot has happened since then. Here we revisit some of our thoughts from that paper, and look at the more recent performance of Value in the face of (a) the Russia-Ukraine conflict, (b) high realised and anticipated inflation, and (c) the risk of a global recession.

New data reveals stronger correlations between female executive participation and company performance/returns. Investors could be overlooking gender diversity as a predictor of profitability and share market returns, a new study shows. While correlations between corporate female participation and better investor outcomes have been highlighted before, Realindex Investments’ new study, ‘Beyond lip service: tracking the impact of the gender diversity gap’, looks beyond the easy to find board-level diversity data and into executive team composition for a clearer link.

A 20-year dispute between US and Chinese regulators regarding the auditing of Chinese-domiciled but US-listed securities could soon be resolved. The Public Company Accounting Oversight Board (PCAOB) has recently signed a Statement of Protocol with the China Securities Regulatory Commission (CSRC) and the Ministry of Finance of the People’s Republic of China governing inspections and investigations of audit firms based in China and Hong Kong. This agreement establishes a specific, accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in China and Hong Kong, as required under US law. While this new agreement is an important step forward, it should be noted that the agreement itself does not satisfy the HFCAA. Compliance with the agreement is ultimately what matters and US regulators will be monitoring compliance. The news of an agreement has provided some relief to investors and is an important step forward in resolving this dispute after significant uncertainly.

What if we could find investment opportunities based on how people say things, as much as what they say?

Dr Joanna Nash, senior quantitative portfolio manager at Realindex Investments, recently featured in FS Sustainability's podcast series. The episode explores how a singular issue like gender diversity can be used as an alpha signal as well as a qualitative measure of company risk and opportunity. Joanna discusses her ESG integration process and how gender diversity in company management can indicate potential investment opportunity.

In this research series we aim to determine which proportion of stocks which are good/bad value and good/bad quality.

The pricing phenomenon of the dividend run up – an opportunity to generate alpha?

At Realindex, our ongoing research is moving strongly into the area of natural language processing (NLP), and how AI tools can be used to generate alpha.

Dialling down carbon intensity in portfolios could have less of an impact on risk and return than some might think, but the impact will vary depending on the sectors, styles and regions investors are weighted towards. Globally oriented investors can potentially reduce carbon intensity with a small addition of tracking error, but those wanting to address carbon intensity with a high exposure to Australian stocks might find it more difficult.

Over the last 5 years, China has been on the rise within the Emerging Markets. We have all heard the story of the China Dragon and the impressive growth that the Chinese economy has been able to achieve relative to other large economies since the early 1990s. Even more recently as its growth has reduced it is still achieving more than double the growth of the United States. We believe the increase in regulatory risk from both the US and domestically in China has been a large contributor to this fall. The question for investors is this: will it continue and where does the next risk lie?

On the 24th of February 2022, Russia invaded Ukraine. This has led to numerous sanctions being imposed upon the Russian regime by the international community. Sanctions are typically issued by governments targeting individuals, corporations or governments in order to force their compliance with laws, condemnation of actions or threats to peace. Sanctions usually take a diplomatic or economic form and aim to provide incentive for the target to change their course of action. Previous forms of sanctions include the US Government sanctioning Chinese military companies in response to perceived national security threats , and the European Union sanctioning individuals from Russia, Myanmar and Syria in response to terrorism and human rights infringements in those countries . The current round of Russian sanctions have primarily focused on damaging the Russian economy through asset freezes and restricting Russian access to the global banking system. The imposition of these sanctions have led to: • Restrictions on the financing of Russian projects and withdrawal of foreign capital • Increased costs of doing business in Russia due to the expulsion of several Russian banks from SWIFT, Mastercard and Visa payment networks • Numerous corporations withdrawing their business operations from Russia • Freezing of overseas assets owned by Russians • Restrictions on trade conducted with Russia • Halting of the Nord Stream 2 gas pipeline On top of government sanctions, we have also witnessed companies behaving proactively. For instance, Shell, ExxonMobil and BP have all announced their divestment and exit from all Russian oil and gas assets . Although existing sanctions have targeted a significant proportion of the Russian economy, they have largely avoided the energy sector due to Europe’s dependency on Russian supplies. There is still the possibility of future sanctions that target the oil and gas trade from Russia which would have a significant impact on global oil prices and a very direct effect on the Russian economy .

This final paper is somewhat shorter than the first two, and simply aims to look a little deeper into whether zombie firms appear in Realindex portfolios, and how a Quality factor acts as a repellent for these stocks. This is more important in Value-oriented portfolios as the potential appearance of lower quality “junk” firms, or even zombies, is higher here than in broader universes.

There are four distinct ways to approach ESG investing in systematic investment strategies. Understanding the pros and cons of each can help to align client preferences. How investment managers and asset owners apply and implement their Environmental, Social and Governance thinking really matters to client outcomes.

Incorporated in 1885, BHP began as a silver, lead and zinc mine in Broken Hill, Australia. Over the next century the company grew into one of the largest diversified resource companies in the world with operations including oil and gas, steel production and mining of a variety of commodities including copper, potash, coal and diamonds. It listed on the Australian stock exchange in July 1961, making it the oldest company currently trading, and throughout much of this time it has been the largest company on the ASX by market capitalisation (currently it is ranked third). In 2001 BHP announced it would merge with fellow resource powerhouse Billiton. Billiton also had a long history dating back to a single tin mine in 1851 before growing into a major producer of aluminium, alumina, chrome, manganese, steaming coal, nickel and titanium. The company was Dutch controlled from inception before being acquired by South African firm Gencor in 1994. As the world’s largest metals and mining corporation, BHP Billiton began trading in July 2002 and operates as a dual listed company (DLC) – a corporate structure in which two companies have merged into a single operating business but retain separate legal identities and stock exchange listings (in this case Australia and the United Kingdom ).

Diversified Alpha is a core systematic strategy designed to deliver consistent, risk-adjusted returns above the benchmark, with Environmental, Social and Governance (ESG) considerations embedded into the process.

RQI Investors’ quantitative value strategies have a long history of outperformance versus peers and value indices. Our disciplined, highly active, and repeatable value investing process provides investors with a benchmark unaware, diversified equity portfolio that is cost competitive versus fundamental active stock pickers.

The explosion of COVID-19 cases in early 2020 saw economic uncertainty hit the markets. Volatility spiked and equity markets fell sharply – the S&P/ASX200 almost halved in value over the 22 trading days from February 21st.

What are zombie firms? How can they affect Australian investors?

Conventional wisdom suggests that value-style investments (‘Value’) outperform their growth-style (‘Growth’) counterparts during periods of higher inflation . But in a period of growing inflation and unprecedented conditions, we believe it is useful to test this assumption. This article outlines how Value investments have performed in 2021 and what might be in store for Value investors if inflation leads to higher interest rates.

Leveraging our recent paper, ‘Reducing carbon intensity in portfolios: Better news than you think’, which analysed the investment impact of reducing carbon exposure versus the benchmark; we turn our attention to how we can reduce carbon risk in our Value strategies.

Equity markets are currently at all-time highs. This has generated returns which, we believe, are unlikely to continue, so we need to think about where returns are likely to come from over the next 10 years. We need to think about how investors can position themselves to take advantage of this. This note highlights why Emerging Markets (EM) Value looks to be a market segment which appears – relatively speaking – to be attractive.

Discover how our equity managers with one of Australia's longest track records provide capital and income growth by investing in the Australian share market.

Under Executive Order 13959 (EO) , former US President Trump imposed sanctions against a number of communist Chinese military companies in response to perceived national security threats. The sanctions aim to ban US investment in companies developing technologies that will benefit the Chinese Military at the expense of the US.