Building a Quantamental Equity Strategy with Fundamentals and Peer Scores

Summary

The article combines company fundamentals with quantitative ranking to select equities. It describes comparing a group of large technology stocks using valuation and leverage ratios, inverting the ratios to represent value, standardizing them with Z-scores, and applying a scoring rule. It then adds quarter-to-quarter F-scores and G-scores to assess whether selected company metrics are improving or declining. Higher combined scores are used to rank candidates for an equally weighted portfolio that is refreshed annually.

The article reports that a backtest covering January 2017 through December 2020 outperformed NASDAQ in cumulative wealth, and describes selecting six stocks to limit concentration. However, it supplies no numerical performance statistics in the text and the underlying charts or code are not included. The example uses a limited stock universe and annual rebalancing; the stated results do not establish that the method will generalize or remain effective. The article also suggests adding momentum filters or optimizing portfolio weights.

Key ideas

• The strategy combines relative valuation and leverage ratios with changes in company fundamentals over time.
• Inverted ratios are standardized with Z-scores before companies receive peer scores.
• Quarter-to-quarter F-scores and G-scores add an assessment of each company’s own financial trend.
• The example ranks candidates and holds an equally weighted selection, rebalancing annually.
• The reported backtest outperformed NASDAQ over its stated period, but detailed performance statistics are not provided.

Tags

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