The Lookout Report is a compendium of current data and perspectives from across S&P Capital IQ and S&P Indices covering corporate earnings, market and credit risks, capital markets activity, index investing, and proprietary data and analytics. Published bi-weekly by the Global Markets Intelligence research group, the Lookout Report offers a detailed cross-market and cross-asset view of investment conditions, risks and opportunities.Unrelenting Weather, The U.S. Economy, And The Outlook for 2014 Earnings - We're Looking Forward To The Winter Thaw, February 21, 2013 Financial Market Outlook: Once Again, We're Paying Particularly Close Attention To Housing, February 7, 2013 Differences And Similarities Between Today And The Start Of 2013, January 24, 2013
The performance of S&P Capital IQ's four U.S. stock selection models since their launch in January 2011 has been strong, and 2013 was no exception. Key differentiators, such as distinct formulations for large and small cap stocks, bank-specific factors, sector-neutrality to target stock-specific alpha, and the combination of sub-components representing different investment themes have enabled the models to outperform across disparate market environments. In this report, we review the performance of S&P Capital IQ's four U.S stock selection models in 2013, and since their inception in January 2011. In assessing the underlying drivers of each model's performance over the 12 months ended December 31, 2013.Buying Outperformance: Do Share Repurchase
In this report, we explore the increasingly prevalent share repurchase program announcements as a candidate for event screening. We examine the returns surrounding buyback announcements to test whether, and when, buyback programs signal subsequent outperformance and shareholder value.Informative Insider Trading
In this report, we investigate the impact of the public disclosure of insider trading on equity prices, using both an event study framework and a portfolio formation approach. Leveraging S&P Capital IQ's Ownership database, we explore several practical methods of identifying "informative" insider trades, and how to construct a portfolio of stocks using recent "informed" insider transactions.Research Brief: Exploring Pension Plans
In this brief we leverage S&P Capital IQ datasets to
• Companies with the strongest and weakest pension funding status globally.
• Companies with the most optimistic return and discount rate assumptions globally.
• The relationship between projected and realized pension portfolio returns.
• The historical global trends in funding status, portfolio returns, and discount rates.
In this report, we explore the efficacy of different stock selection strategies globally and use this information to develop a suite of robust global stock selection models targeting Canada and the developed markets of Europe and Asia Pacific. This work is an extension of our earlier work in the US ("US Stock Selection Models Introduction", January 2011). Our global models were developed using S&P Capital IQ's industry leading Global Point-in-Time data, as well as the Alpha Factor Library, our web-based global factor research platform.Inspirational Papers on Innovative Topics:
In this piece we gathered a number of inspirational articles that we recently read on three topics of particular interest to ourselves and our clients -- asset allocation, insider trading, and event studies. We hope that as you make your way through your reading list on the beach this summer, these papers provide you with the inspiration for innovative investment thought.Supply Chain Interactions Part 2: Companies
Leveraging Compustat customer segment data, we construct a map of significant company level supply chain connections in the United States based on the revenue a supplier derives from its customers. Using this map, we investigate the impact of news for customers and subsequent stock returns for their suppliers, over the time period May 2000 through April 2011.Behind the Asset Growth Anomaly
In this paper, we revisit the asset growth anomaly by extending global results to the end of December 2012 and providing additional behavior-based arguments on why investors seem to persistently misprice the growth rates of total assets, one of the most readily available pieces of financial information.Complicated Firms Made Easy Using Industry
Regular readers of our research will know that one of our major
areas of focus of late has been how investors can leverage
industry-specific signals to enhance their portfolios' performance.
Yet many of the most widely followed, largest companies span
multiple industries and complex business lines.
This month we build upon the work done by Cohen and Lou in their 2010 paper, "Complicated Firms", to determine if we can exploit industry level information from pure-play firms to predict the future performance of multi-industry, complicated firms.
Investors routinely utilize industry intelligence in their investment process. But which information is relevant? Which is irrelevant? Our work yields some surprising results.
This work complements our previous industry work on Retail [June 2011], Banking [Oct 2011], and Oil & Gas [May 2012]. Using S&P Capital IQ's Global Point-in-Time database and Compustat Industry-Specific data, we look at 70 factors in 11 industries: airlines, hospitals & facilities, managed healthcare, pharmaceuticals & biotechnology, homebuilding, insurance, telecommunications, utilities, gold miners, hotels & gaming, and restaurants.Follow the Smart Money
On October 31, 2012, Netflix's stock rose 13.9% when Carl Icahn, a renowned activist investor, disclosed a substantial stake in Netflix, intending to influence the future direction of the company. In the subsequent month, the stock tacked on an additional 3.1% compared with 0.6% for the S&P 500. This prompts the question: Can profits be made by following the actions of activists?Stock Selection Model Performance Review:
In this report, we review the performance of S&P Capital IQ's four U.S. stock selection models in 2012. These models were launched in January 2011, and this analysis will assess the underlying drivers of each model's performance over the 12 months ended December 31, 2012.Do CEO and CFO Departures Matter?
In October of this year, the US equity market was caught off guard with the seemingly sudden departure of Citibank CEO Vikram Pandit. While CEO departures are almost always headline news, CFO departures are not often accompanied with such recognition. We explore the impact of CEO and CFO departures and find consistent results in the US and the Developed World. CEO and CFO departures often signify a turning point in both the company's stock performance and the company's operating metrics
On average, stocks of companies that replace their CEO's outperform the market by a statistically and economically significant, 2.1% and 5.3% in the following year in the US and the developed world, respectively. Why do stocks of companies outperform following a CEO change? One might suspect that companies that experience CEO or CFO departures have underperformed and would as a result, be valued cheaply. We explore whether subsequent outperformance can be attributed to the company moving form a 'cheap' valuation to 'fair' value.
An additional hypothesis explored is whether the outperformance is merely mean-reversion or a snap-back from recent poor performance. We then investigate whether the new CEO is able to affect meaningful change.Introducing S&P Capital IQ's Fundamental Canada Equity Risk Models
In July 2012 we released our regional risk models - the Pan-Asia ex. Japan and the Pan-European Models, and updated versions of our US and Global Risk Models. Continuing in our efforts to provide a broad set of models to the asset management community, we are now releasing our second single country risk model - Canada Fundamental Equity Risk Model.
The highlight of our risk models continues to be our building blocks - "best of breed" point-in-time Capital IQ data, state of the art Alpha Factor Library, Global Industry Classification System (GICS®) and an open and robust risk estimation methodology. The Canada Equity Risk Model is built with the goal of generating accurate and robust risk predictions for Canadian equity investors. It is also constructed with a view to provide relevant portfolio risk attributions.Factor Insight: Earnings Announcement Return - Is a Return Based Surprise Superior to an Earnings Based Surprise?
Earnings surprise strategies have been popular amongst investors ever since Ball and Brown  documented the drift in security prices subsequent to company earnings announcements. One of the most widely used surprise stock picking strategy is based on the standardized difference between a company's actual and expected earnings [SUE]. In this report, we compare the performance of SUE to one based on returns around a firm's earnings announcement data [EAR], proposed by Brandt et al .Quant Research - Analyzing Apple using S&P Capital IQ Functionality
Ten years ago, AAPL traded just below $12 and closed at $583.98 on April 30, 2012. That is an average annual return of 48.1% over the period. During this same time the S&P 500 grew at an annual rate of only 2.65%. On April 2nd, Topeka Capital Markets initiated coverage of AAPL with a price target of $1001. If achieved, this would make AAPL the first company to ever reach a $1 trillion market cap. In this case study, we highlight some key S&P Capital IQ functionality in analyzing AAPL hypothetically reaching $1000:
» Earnings & Revenues
» S&P Capital IQ Intelligent Estimates Model
» S&P Capital IQ Alpha Models
» Historical Total Returns Analysis
» More Food for Thought: Supply Chain & Cash
Material events affecting entities in an economic system should introduce ripple effects to related entities through various types of relationships. Supply chain relationships are among the most visible and measurable, as revenues and costs shape the realized economic and financial performance of connected companies. Studies have shown that events within a supply chain do introduce these ripple effects, and theories incorporating this information into an investment process have garnered attention in recent years.
Leveraging input-output accounts from the BEA and Compustat, which use North American Industry Classification System (NAICS) Codes, we construct a map quantifying industry level connections along the supply chain. Using this map, and trailing industry returns as a proxy for industry level information shocks, we construct inter-industry momentum signals similar to the methodology proposed by Menzly and Ozbas. These signals exhibit lead-lag relationships over short horizons, as the information shocks diffuse through the market and manifest themselves in the performance of related industries.Quant Research - Releasing S&P Capital IQ's Regional and Updated Global & US Equity Risk Models
Over the course of the last two years we released our Global and US Fundamental Equity Risk Models. As a natural progression we are releasing the first set of Regional Models -- the Pan-Asia ex. Japan and the Pan-Europe Fundamental Equity Risk Models. This document will explain some of the salient aspects of the process adopted for constructing the Regional Models. We have also made additional improvements to our US & Global Equity Risk Models, and we shall explain these changes.Quant Research - Papers that caught our Interest: Interesting & Influential Papers
When we get a new investment idea, two questions immediately come to mind. What literature already exists around this topic? and What were the findings? As good research practice, we seek to identify how we can adapt and fine tune our ideas to overcome some of the limitations of past studies, and whether we can use new data sources to augment/validate our thoughts. In short, how can we convert our idea into something that can add value?
We have put together a selection of articles we recently read and discussed, focusing on two topics relevant to our recent research interest - portfolio allocation across asset classes and the relevance and use of analyst estimates.Quant Research - Exploring Alpha from the Securities Lending Market
New Alpha Source Stemming from Improved Data
Numerous studies have examined the information content of short interest and found that heavily shorted stocks tend to underperform and liquid stocks with low levels of short interest subsequently outperform. Most studies relied on short interest data obtained directly from the exchanges available with a significant delay.
S&P Capital IQ has partnered with Data Explorers, an innovative data company that provides content on the securities lending market including daily shares borrowed, inventory of available shares on loan, and stock borrowing costs. We examine the usefulness of this unique data set in the U.S. and other international developed markets, and find that this timelier, daily data provides additional signal strength over the traditional lagged data sourced from the exchanges.Quant Research - Intelligent Estimates
In this paper, we introduce the S&P Capital IQ Intelligent Estimate Model and discuss the actuarial approach taken to forecast company earnings. Rather than placing focus on the most accurate analyst, the Intelligent Estimate Model focuses on the attributes of an accurate forecast: age of estimate, broker size, forecast horizon, and tenure.Quant Research - Methods in Dynamic Weighting
The bread and butter for quantitative portfolio managers has traditionally been static multifactor models. These models have provided fairly consistent performance especially in stable market environments. However, they have weathered their fair share of storms where a certain style or strategy underperforms for a prolonged period. Mitigating these episodes of relative underperformance would enhance almost any quantitative investment process, but relating broad market and time series dynamics to individual security selection is a challenging proposition. In this report, we introduce a powerful discovery tool in Alphaworks and provide a pragmatic survey covering the identification and potential dynamic techniques to handle financial regimes and security level context.Quant Research - How Much Alpha is in Preliminary Data?
Companies often report financials twice: first, through a preliminary press release and again in their official, i.e., final, SEC filings. In theory, there should be no difference between the numbers reported in a company's preliminary financial filings and their final filings with the SEC. In practice, often significant difference can occur between the preliminary and final filings. In this month's research report, we focus on these observed differences within the Capital IQ Point-In-Time database in order to ascertain the nature and exploitability of these differences.Quant Research - Variations on Minimum Variance
Various explanations for why risk is mispriced have been offered; the most common one is that leverage restrictions incite some investors to chase volatility at the individual issue level. In this paper, we explore various methodologies for construction of minimum variance portfolios of US listed equities and analyze the features of these portfolios.Quant Research - US Model Introduction
In this report, we launch our four US Stock Selection models - Value, Growth, Quality, and Price Momentum. Built using Capital IQ's robust data and analytics, these four models are the culmination of over two years of research and development. Each model is intended to be employed as the basis for a stand-alone stock selection strategy or integrated into an existing systematic process as an overlay or new component.Papers that Caught Our Interest in 2010
Our research team conducted an extensive review of innovative and interesting articles and papers from academics, analysts, and other researchers. This report provides a compilation of all articles selected and discussed by our team. For each article we provide links to the articles, the abstracts, and a brief discussion of why the article was chosen and how it could be useful for our research.Quant Research - Getting the Most from Point-in-Time Data
In this paper, we will examine PIT data's origins, structure, variations, and proper use in implementations from Compustat and Capital IQ. Misusing PIT data, or applying it haphazardly, can discard valuable information and obscure otherwise clear signals.Quant Research - Introducing Our Equity Risk Models
In this report, we describe the foundation for our Capital IQ US Equity Risk Models. Built over the last year, we believe these models provide more robust, more accurate risk estimates than other alternatives in the market.
Global sovereign Credit Default Swap (CDS) spreads tightened 9.5% in Q4 2013 as stocks continued to rally, Japan CDS spreads tightened the most - 37.30% over the quarter - and closed 2013 at 40bps - a level not seen by this sovereign since the middle of 2009. Italy and Spain were the largest tighteners in Western Europe, with five year spreads ending the year at 167bps and 153bps, respectively, according to S&P Capital IQ's latest quarterly Global Sovereign Debt Credit Risk Report.Global Sovereign Debt - Credit Risk Report,
Egypt CDS spreads tightened nearly 100bps early in the quarter as the country's army overthrew President Morsi and installed an interim Head of State. Although the region remains volatile, it still ended the quarter at 673bps, signifying a tightening of 24%. Argentina remains the most risky sovereign credit globally, despite it tightening over 17% over the quarter.Global Sovereign Debt - Credit Risk Report,
Argentina remains the most risky sovereign globally (in terms of CPD) despite CDS spreads tightening 23% during Q2.The US was the best performer of the quarter as spreads tighten to 27bps from 37bps.The UK enters top 10 least risky sovereigns.Global Sovereign Debt - Credit Risk Report,
A last minute bail out of Cyprus prevented a default as upfront prices fluctuated 7pts towards the end of the quarter. However, default risks remain high at 70% over five years, according to the report.Meanwhile, spreads in the UK widened to 55bps after the much anticipated credit rating downgrade, but finished the quarter strongly at 45bps.CMA Sovereign Debt Credit Risk Report -
Global sovereign CDS prices tightened 16% in Q4 2012 overall, as Europe rallied strongly and Greece repurchased debt, allaying fears of a Euro exit. The report, published today, names the top ten most and least risky sovereigns, as well as the best and worst performers of the quarter.CMA Release Global Sovereign Credit Risk Report Q3 2012,
CMA today released its Global Sovereign Debt Credit Risk Report for the 3rd Quarter of 2012, in which it names the top ten most and least risky sovereigns as well as the largest percentage wideners and tigheners.CMA Release Sovereign Debt Credit Risk Report Q2 2012,
Greece re-enters CMA Sovereign Credit Risk ReportCMA Release Sovereign Debt Credit Risk Report Q1 2012,
Greece exits the Sovereign report.CMA Release Sovereign Debt Credit Risk Report Q4 2011,
Global sovereign debt performances for Q4 2011 revealed, in CMA's latest Sovereign Debt Credit Risk ReportCMA Release Sovereign Debt Credit Risk Report Q3 2011,
Global sovereign debt performances for Q3 2011 revealed, in CMA's latest Sovereign Debt Credit Risk ReportCMA Releases Sovereign Debt Report for Q2 2011,
CMA today released its Sovereign Debt Credit Risk Report for the 2nd quarter 2011, in which it names the top ten most and least risky sovereigns, and the best and worst performers.CMA Releases Sovereign Risk Report for Q4 2010,
CMA's Sovereign Debt Credit Risk Report names best and worst performers for Q4 2010. CMA today released its Sovereign Debt Credit Risk Report for the fourth quarter 2010, in which it names the top ten most and least risky sovereigns, and the best and worst performers.CMA Releases Sovereign Risk Report for Q3 2010,
CMA, the credit information specialist, today announced the release of its quarterly Global Sovereign Credit Risk Report for Q3 2010CMA Releases Sovereign Risk Report for Q2 2010,
CMA, the credit information specialist, today announced the release of its quarterly Global Sovereign Credit Risk Report for Q2 2010CMA Releases Sovereign Risk Report for Q1 2010,
CMA, the credit information specialist, today announced the release of its quarterly Global Sovereign Credit Risk Report for Q1 2010CMA Releases Sovereign Risk Report for Q4 2009,
CMA, the credit information specialist, today announced the release of its quarterly Global Sovereign Credit Risk Report.CMA Releases Sovereign Risk Report for Q3 2009,
CMA, the credit information specialist, today announced the release of its quarterly Global Sovereign Credit Risk Report.CMA Releases Sovereign Risk Report for Q2 2009,
CMA, the credit information specialist, today announced the release of its quarterly Global Sovereign Risk Report for Q2 2009CMA Releases Sovereign Risk Report for Q1 2009,
CMA, the credit information specialist, today announced the release of its quarterly Global Sovereign Risk Report for Q1 2009
Information-driven financial companies must re-think the role of models and analytics in their businesses. The changes ahead will be fueled by the larger role of analytics, as well as the powerful computational resources and data technologies now readily available. Who benefits? How? What will the new world require of financial companies? The answers can, in fact, change depending on context or application.Explore the work of Dr. Dan Rosen, Ph.D., Managing Director of Risk and Analytics Valuation and Structured Credit Counterparty Credit Risk Economical Capital and Credit Risk Risk Management and Optimization
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