Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Thematic (Sector/Industry)

<ul><li>In the launch report of Portfolio Construction Assist, Evidente dissected the investment implications of the exceptionally low rates of return on low risk assets <a href="https://www.smartkarma.com/insights/portfolio-construction-assist-no-oasis-for-stock-pickers" target="_blank" data-smartkarma-citation="insights:3202">Portfolio Construction Assist - No Oasis for Stock Pickers</a>.  Lower sovereign bond yields have not translated into lower earnings yields, reflecting the fact that investors are implicitly assigning a higher equity risk premium (ERP) to future company cash flows - with an assist from lower future growth prospects. </li><li>In this post, Evidente investigates the interaction of a higher ERP with the earnings yields of defensive and cyclical assets.  Based on valuation theory, cyclical stocks de-rate as the ERP increases while defensive stocks re-rate.  Thus in recent years, if investors have raised their estimates of the ERP, the earnings yields of defensive assets should have fallen relative to cyclical assets, controlling for future expected growth.</li><li>The evidence supports this thesis.  Based on pairwise combinations of stocks in the Australian market, I find that defensive stocks have experienced multiple expansion relative to cyclical stocks, controlling for changes in future growth prospects.  If this interpretation is correct, as long as the global neutral rate of interest remains close to zero, the ERP should remain high and defensive assets continue to trade at a premium.</li></ul>

In the launch report of Portfolio Construction Assist, Evidente dissected the investment implications of the exceptionally low rates of return on low risk assets Portfolio Construction Assist - No Oasis for Stock Pickers.  Lower sovereign bond yields have not translated into lower earnings yields, reflecting the fact that investors are implicitly assigning a higher equity risk premium (ERP) to future company cash flows - with an assist from lower future growth prospects. In this post, Evidente investigates the interaction of a higher ERP with the earnings yields of defensive and cyclical assets.  Based on valuation theory, cyclical stocks de-rate as the ERP increases while defensive stocks re-rate.  Thus in recent years, if investors have raised their estimates of the ERP, the earnings yields of defensive assets should have fallen relative to cyclical assets, controlling for future expected growth.The evidence supports this thesis.  Based on pairwise combinations of stocks in the Australian market, I find that defensive stocks have experienced multiple expansion relative to cyclical stocks, controlling for changes in future growth prospects.  If this interpretation is correct, as long as the global neutral rate of interest remains close to zero, the ERP should remain high and defensive assets continue to trade at a premium.

Portfolio Construction Assist - Dissecting Multiple Expansion in Defensive Assets