theglobeandmail.com
U.S. Mid-Cap Stocks Outperform S&P 500 Using Momentum and Quality Factors
A screen of U.S. mid-cap stocks using Trading Central's Strategy Builder identified high-performing companies like Heritage Insurance Holdings Inc. (185% one-year return) and One Gas Inc. (25.6% year-to-date return), exceeding the S&P 500's performance with a 25% annualized return over five years.
- How does the screen's methodology, using Trading Central's factor ratings and liquidity filters, contribute to identifying undervalued growth opportunities?
- The strategy leverages Trading Central's Strategy Builder, a stock screener employing proprietary Quality and Momentum factor ratings. This approach aims to uncover undervalued, high-growth companies potentially overlooked by traditional analysts. Backtesting shows a 25% annualized return over five years, significantly exceeding the S&P 500's 14% return.
- What are the key characteristics of the outperforming U.S. stocks identified by this screen, and what is their significance relative to broader market performance?
- This screen identifies U.S.-listed mid-cap stocks (market cap US$500 million to US$5 billion) exhibiting robust price performance and solid fundamentals, outperforming the S&P 500. The selection criteria include high Trading Central Momentum and Quality Factor Ratings (minimum 60), sufficient liquidity (listed options, minimum US$10 share price, 10-day average trading volume exceeding 90-day average), and a price within 15% of its 52-week high.
- What are the potential limitations or risks associated with this stock-picking strategy, and how might its performance be affected by changing market conditions or economic factors?
- The screen's success highlights the potential for alpha generation by focusing on mid-cap stocks with strong fundamentals and momentum. Future research could explore expanding the screen to include other market segments or refining the factor weighting to optimize performance. The emphasis on liquidity and trading volume helps mitigate risk associated with smaller companies.
Cognitive Concepts
Framing Bias
The overwhelmingly positive framing, emphasizing high returns and strong momentum, creates a bias towards viewing these stocks favorably. Phrases like "outperforming U.S.-listed companies," "robust price performance," and "compelling choice" are used repeatedly to generate enthusiasm. Headlines and subheadings further reinforce this positive narrative. The inclusion of year-to-date and one-year returns at the end almost implicitly suggests that this is an endorsement to buy these stocks.
Language Bias
The language used is generally positive and promotional. Terms like "remarkable," "compelling," "strong," and "outperforming" are used frequently to describe the selected stocks. More neutral alternatives could include 'significant', 'high', 'substantial', and 'exceeding'. The repeated use of superlatives, such as "highest on our list" and "highest in our list," reinforces a positive bias.
Bias by Omission
The article focuses on specific criteria for stock selection and doesn't explicitly mention omitted perspectives. However, the lack of discussion regarding potential risks associated with each company (e.g., regulatory changes, competition, economic downturns) constitutes a bias by omission. The focus on positive aspects without balancing them with potential downsides could mislead readers into believing these stocks are without risk.
False Dichotomy
The article presents a simplified view of stock selection, implying that only stocks meeting specific criteria are worthwhile investments. This ignores the complexity of market dynamics and the possibility of successful investments outside of these criteria. The implicit suggestion that only these screened stocks are 'good' investments is a false dichotomy.
Gender Bias
The article does not exhibit overt gender bias. Company leadership is not discussed, preventing assessment of gender representation in those roles. However, the lack of information on this aspect constitutes a bias by omission.
Sustainable Development Goals
The article highlights a stock screen identifying U.S.-listed companies with robust price performance and solid fundamentals, contributing to economic growth and potentially creating job opportunities within those companies. The focus on mid-cap companies suggests support for smaller businesses and potentially more job creation compared to large corporations.