Equity factor indices

Existing factor indices exhibit a broad range of deficits. Based on our experience in factor investing Alpha Centauri was able to address and resolve most of these problems. In detail, these issues are:

Quality of data

Most index vendors use conventional company datasets to calibrate their indices. One of the problems resulting from the use of this kind of data is, that they are not point in time, which means that the data were not known at the time of index calculation yet. Lagging does not solve the problem, because as with macroecomomic datasets most of these data are prone to hefty revisions.

Alpha Centauri uses point-in-time data series.

Rebalancing frequency

The majority of factor indices are rebalanced every six month. This frequency is far too low for successful factor investing / extraction, because the market reprices factor loadings in relatively short time frames. At the end, investors are holding “return free risk”, because return is priced out of the stock basket, while tracking risk remains.

Alpha Centauri rebalances in shorter spans.

Systematic Risk

Current concepts exhibit disproportionate systematic risk, mainly induced via country-, currency- and sector risk as well as exposure to other unwanted factors. High tracking error with respect to main indices is a byproduct.

Alpha Centauri uses FIS' investment Risk solution (APT) for index construction – a system awarded several times for its outstanding quality.

Number of stocks

A few number of factor indices contain a small number of stock and lack diversification while a lot of indices are "diworsified", to use Charlie Munger's phrase, that is too many constituents. This leads to higher replication costs.

Alpha Centauri indices ensure proper diversification while containing systematic risk beyond target factor load.

Weighting scheme

Existing concepts use weighting schemes according to the main indices. The pitfall of this approach is that market capitalization is the main driver of weight and factor load is misrepresented. A small stock with high factor exposure exhibits small weight on average.

Alpha Centauri uses factor load as a main driver while containing risk exposures (small cap for example) through risk management techniques.

  • understandable
  • widely established
  • sustainable
  • accessible
  • attractive

Factor

Description

Name/Ticker
Long Only

Name/Ticker
Future

Name/Ticker
Market Neutral

Value stocks that are cheap based on cash flow and earnings per share Value iSTOXX Europe Value Factor
Bloomberg direct:
ISEVFER Index


iSTOXX USA Value Factor
Bloomberg direct:
ISUVFUR Index
iSTOXX Europe Value Factor Future
Bloomberg direct:
FXRA Index
iSTOXX Europe Value Factor Market Neutral
Bloomberg direct:
ISEVMEEN Index
Carry stocks with high carry based on earnings and dividends Carry / Growth iSTOXX Europe Carry Factor
Bloomberg direct:
ISECFER Index


iSTOXX USA Carry Factor
Bloomberg direct:
ISUCFUR Index
iSTOXX Europe Carry Factor Future
Bloomberg direct:
FKSA Index
iSTOXX Europe Carry Factor Market Neutral
Bloomberg direct:
ISECMEEN Index
Quality stocks with solid financial background based on debt coverage, earnings and other Quality iSTOXX Europe Quality Factor
Bloomberg direct:
ISEQFER Index


iSTOXX USA Quality Factor
Bloomberg direct:
ISUQFUR Index
iSTOXX Europe Quality Factor Future
Bloomberg direct:
FXOA Index
iSTOXX Europe Quality Factor Market Neutral
Bloomberg direct:
ISEQMEEN Index
Momentum stocks with exceptional historical price movements Momentum iSTOXX Europe Momentum Factor
Bloomberg direct:
ISEMFER Index


iSTOXX USA Momentum Factor
Bloomberg direct:
ISUMFUR Index
iSTOXX Europe Momentum Factor Future
Bloomberg direct:
FXWA Index
iSTOXX Europe Momentum Factor Market Neutral
Bloomberg direct:
ISEMMEEN Index
Low Risk stocks with risk / vola levels below average Risk iSTOXX Europe Low Risk Factor
Bloomberg direct:
ISERRER Index


iSTOXX USA Low Risk Factor
Bloomberg direct:
ISURFUR Index
iSTOXX Europe Low Risk Factor Future
Bloomberg direct:
XLRA Index
iSTOXX Europe Low Risk Factor Market Neutral
Bloomberg direct:
ISERMEEN Index
Size stocks with low market capitalization / enterprise value Size iSTOXX Europe Size Factor
Bloomberg direct:
ISEZFER Index


iSTOXX USA Size Factor
Bloomberg direct:
ISUZFUR Index
iSTOXX Europe Size Factor Future
Bloomberg direct:
FXEA Index
iSTOXX Europe Size Factor Market Neutral
Bloomberg direct:
ISEZMEEN Index
Multi-Factor stocks with ratings above average for all (prior) single factors Multi-Faktor iSTOXX Europe Multi-Factor
Bloomberg direct:
ISEXFER Index


iSTOXX USA Multi-Factor
Bloomberg direct:
ISUXFUR Index
  iSTOXX Europe Multi-Factor Market Neutral
Bloomberg direct:
ISEXMEEN Index


Detailed risk analytics and additional information at:
www.riskpremia.de