After posting their fifth consecutive monthly positive return, stocks exhibiting attractive Valuation factors finished as the top performing investment style of 2012.
The Valuation category – one of the six Alpha Factors by which Hermes Quantitative Equities’ measures the attractiveness of an investment – aims to identify cheap stocks using earnings, cash generation and the asset value of a company.
Valuation was the only factor to offer positive returns during December, with the cheapest stocks outperforming the least attractive by 2.19% during the month. Stocks with low return on assets (residing in the Capital Structure category) underperformed by the greatest amount.
Across the entire year, Valuation offered the highest returns on a quintile spread basis. Three other investment styles also delivered positive performance – Sentiment, Corporate Behaviour and Profitability.
At a geographic level, each of the six investing styles added value in Europe in 2012, but each factor offered only delivered neutral performance in Japan. In North America, cheap stocks and companies with positive price momentum offered positive performance.
The strong performance for attractively valued stocks came as investor optimism spiked over the course of the month. Hermes Quantitative Equities’ global Investor Risk Aversion indicator breached the ‘Optimistic’ barrier for only third time this year in December.
The indicator for December moved into Optimistic territory for 11 days during the month, half of the 22 days registered across the entire year. There were only 15 days of risk averse behaviour in the ‘Nervous zone’.
At the end of the December, the indicator sat at the 31st percentile – still very close to the 25% Neutral/Optimistic boundary.
Investor optimism at three-year high