Vinculum - new style 'tracker'

gadgetmind

temagami wrote: »

No, quite the opposite. Yes, there is some evidence that value investing strategies outperform that market over the long run, but what this fund seems to be claiming it will use as its strategy and what I was referring to specifically was a strategy of investing in the best quality companies, almost regardless of value.

I know what they say, but I'm also familiar with the work of Joseph Piotroski, who I assume is who they mean when they say "Quality here is measured using the Piotroski score, which is essentially a nine-point checklist of firm’s financial health – higher scores are better. "

Wikipedia (http://en.wikipedia.org/wiki/Joseph_Piotroski) says -

"Piotroski received widespread publicity within the investment community for his 2000 paper, Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers, which appeared in the Journal of Accounting Research (Vol. 38, Supplement: Studies on Accounting Information and the Economics of the Firm).

The paper examined whether a simple accounting-based fundamental analysis stock selection strategy, when applied to a broad portfolio of high book-to-market firms, could impact returns for investors. He began by limiting his search to firms whose book/market ratios (the inverse of the price/book ratio) were in the top 20% of the market. He then ran those firms through an array of tests involving their balance sheets and income statements, using such metrics as the return on assets rate, current ratio, change in gross margin, and change in asset turnover.
"


So, we have a quality assessment system that's based on Piotroski work on value invested, and uses his name, but doesn't include value in its rating algorithm. I'm sure it's just my ignorance, but I'm confused.



Aside: Words such as "value" and "quality" have little meaning in this context unless rigorously defined because it's all to easy to be swayed by their subjective meanings in other contexts.

temagami

So, we have a quality assessment system that's based on Piotroski work on value invested, and uses his name, but doesn't include value in its rating algorithm. I'm sure it's just my ignorance, but I'm confused.

I was going to add a comment clarifying that, but cut it to keep things shorter. Yes, Piotroski developed the F-score to be used as an additional screen in conjunction with a value screen, which somewhat addresses the problem of value strategies selecting for companies in weaker financial health.

In the note I summarised (I can't find the whole thing right now or I'd link to it) the sorting is based on Piotroski F-scores only with no assessment of value - which is not how Piotroski conceived the screen but provides one quantitative method of defining quality.

Other definitions seem to give similar results. From memory the GMO approach is very straightforward - essentially high and stable profitability and low debt. At the more complex end, I've also seen studies that use the Merton distance to default model.

gadgetmind

temagami wrote: »

In the note I summarised (I can't find the whole thing right now or I'd link to it) the sorting is based on Piotroski F-scores only with no assessment of value - which is not how Piotroski conceived the screen but provides one quantitative method of defining quality.

I guess it's trying to systemise the old adage that it's better to buy a good company at a fair price than a fair company at a good price.

It's an interesting filter but I still wouldn't buy a product with a charging scheme such as this.