Our firm specializes in creating value-oriented equity portfolio strategies for global, regional and sector funds using quantitative market and stock selection techniques that are customized for each fund’s investment universe, such as major industrial markets or emerging markets.
Much of our work concerns country selection models. Our research has shown that over 3- to 5-year periods national equity markets tend to oscillate around equilibrium value levels. These values can be determined approximately through in-depth analyses of the underlying fundamentals. By entering markets when they sell at a discount to their intrinsic value and exiting them when they sell at a premium, it is possible to achieve higher returns than by following a buy-and-hold strategy.
Based on this finding, we have developed objective criteria for structuring diversified equity portfolios that carry less risk, yet have the potential for outperforming their benchmarks. These criteria, which are the result of years of research, are similar, but not identical, from one investment universe to the next.
Active market selection is a key driver of the performance of our global and regional portfolios, accounting for most of the value added. To build a fund portfolio, we therefore start with a valuation analysis of the investment universe in which we operate. We determine the degree to which each component market is over- or underpriced. We then buy into a combination of attractively priced markets and hold them until they become slightly overpriced. Performance advantages are achieved if and when the gap between price and value closes, which usually happens within three to five years.
The country allocation process tends towards equal weighting of markets (subject to liquidity). As a consequence, smaller markets may carry a higher weight in our portfolios than in market capitalization weighted benchmark indices. Within each market, sector and industry weights are kept close to benchmark levels in order to limit macro-economic risks.
Active stock selection based on our value criteria also contributes to the performance of our portfolios, but, in the past, has added less value than active market selection.
All our stategies are characterized by low portfolio turnover that results in low transactions costs.
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