Annual Long–Short Stock Sort by R&D Spending Relative to Market Capitalization

Summary

This document presents an annual U.S. equity strategy that ranks firms by research and development spending relative to market capitalization. At the end of April, it forms a long portfolio from the highest-ranked group and a short portfolio from the lowest-ranked group, with equal weights and annual rebalancing. The ranking uses a weighted history of R&D expenditures over five years, giving more weight to recent observations, and the code limits the eligible universe to exchange-listed firms with fundamental data and nonzero reported R&D.

The document provides implementation code and says its displayed performance is replaced by a more recent backtest, but it includes no performance figures or supporting analysis in the text. The code also stores each year’s R&D observation before the rolling history is ready, so the strategy begins only after enough history accumulates. It truncates the candidate universe by market capitalization and applies leverage settings, while the exact portfolio results would depend on data availability, shorting, costs, and platform behavior. The code is an implementation example rather than evidence that the signal will persist.

Key ideas

• The strategy ranks eligible stocks by multi-year R&D spending relative to market capitalization.
• It takes long positions in the highest-ranked group and short positions in the lowest-ranked group.
• The portfolio is equally weighted and rebalanced annually after the April ranking.
• The implementation requires historical R&D observations before it can form rankings.
• The document provides code but no numerical performance evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.