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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