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 Our Research Based Approach 
 Three Factor Model 

Our approach:

Research shows that exposing portfolios to three factors will very reliably explain virtually all portfolio performance - the market, company size and the value effect.  The research, which has been consistently repeated in markets around the world, shows that two factors - company size and value (or company health) are sources of above market average returns.  We therefore expose investment portfolios to all three factors.

 

The research:

The Cross-Section of Expected Stock Returns

The Journal of Finance

Eugene F. Fama and Kenneth R. French

June 1992, Vol. 47, No. 2: 427-465

 

What the paper says: The three factors of: 1) market beta, 2) firm size & 3) value effect do the best job of explaining expected returns and are rewarded by markets with higher average returns over time.

 

In the author's own words: "performance versus the market or versus the next guy depends almost entirely on the amount of stocks in general, the amount of small cap stocks and/or high BtM (value) stocks you hold."

  

The Value Effect

Excellence Revisited

Financial Analysts Journal

Michelle Clayman

May/June 1994, Vol. 50, No. 3: 61-65

 

What the paper says: There is a tradeoff between growth and profitability versus valuation ratios.

 

In the author's own words: "Good companies do not necessarily make good investments, the market appears to reward profitable companies selling at reasonable multiples."

The next page in the research story - Imputation Credits
Scott Francis' articles in the Eureka Report 

Plan Well, Invest Well, Live Well! Financial advice providing a clear direction

A Clear Direction Financial Planning and Portfolio Management ABN 85 147 572 870

Level 19
10 Eagle Street
Brisbane QLD Australia
Ph: (07) 3303 0269
Email: scottk@acleardirection.com.au

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