TP2400x272B

The best strategies we have tested

The table below shows the most profitable strategies we found in the 50 page research paper called Quantitative Value Investing in Europe: What Works for Achieving Alpha as well as all our research since then.

Easy to implement

Even though the strategies may look complicated at first don’t let that worry you, they are all easy to implement with the screener. And if you struggle remember help is just an email away.

Don’t choose the highest returns, rather find the right strategy for you

These are all strategies with very good returns and your goal here is not to choose the highest return strategy.

Your goal is to choose the strategy that matches your investment style. This will also be the strategy you feel most comfortable with and the one that will allow you to sleep comfortably at night.

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Price Index 6m & Earnings Yield

(For more information on Price Index strategies click this link: 6m Price Index & Price to Book)

The 80/20 of quantitative investing
As you know Earnings Yield (Earnings before Interest and Taxes (EBIT) / Enterprise Value) is truly the 80/20 ratio when it comes to quantitative investing. You can compare it to any ratio, over most time periods, and it will nearly always give you the best returns of any ratio you care to test.

For example
Here are the back tested returns you could have earned if you used the strategy to invest in Europe over the 12 year period 13 June 1999 to 13 June 2011.

Earnings yield 12 year returns
Source: Quantitative Value Investing in Europe: What works for achieving alpha

Q1 (Quintile 1) represents the cheapest 20% of companies in terms of EY and Q5 (quintile 5) the most expensive in terms of earnings yield.

Best for medium to large companies
As you can see the strategy worked best for medium and large companies.

You can do even better
But you can improve your returns substantially if you combine EY with another ratio or indicator as the table below clearly shows:

Earnings Yield two factor returns
Source: Quantitative Value Investing in Europe: What works for achieving alpha

Best combination – Momentum
The best way to increase your returns was to combine EY with Price Index 6 months (6 months momentum) or Price Index 12 months (12 months momentum).

Exact definition – in glossary
You can see the exact definition of all the ratios and indicators in the Glossary

Period
May 1999 - May 2011

Index
+2.25% pa

Return
+22.1% pa +1002.4% 12yr