2. Deep Value Investing Returns (Acquirer’s Multiple) – January 2, 1999 to November 29, 2017
Sunday, May 29, 2016 · Tobias Carlisle
Updated November 29, 2017
Since the last update in July 26, 2016, the screens have had mixed performance.
The Large Cap Screen had a strong finish to end the 2016 year up 27.4 percent, handily beating out the Russell 1000’s 15.1 percent by 12.3 percent. 2017 to date has seen continued strength in the Large Cap Screener. For the year, the Large Cap Screen’s 18.8 percent has outperformed the Russell 1000’s 16.9 percent by 1.9 percent.
The All Investable Screen also had a strong finish to end the 2016 year up 29.1 percent, handily beating out the Russell 3000’s 12.2 percent by 16.9 percent. Unfortunately, 2017 to date has been a disaster. For the year, the All investable Screen has gone backwards, down -6.6 percent, underperforming the Russell 3000’s strong 16.3 percent by a shocking -22.4 percent. This is the worst relative performance the screen has seen in almost 20 years.
The Small and Micro Cap Screen also had a very strong finish to end the 2016 year up 35.5 percent, handily beating out the Russell 3000’s 12.2 percent by 20.4 percent. 2017 to date has been weaker. For the year, the Small and Micro Screen gained 12.0 percent, underperforming the Russell 3000’s strong 16.9 percent by a -4.9 percent.
Chart 1. Returns from January 2, 1999 to Date (Log.)
We backtested the returns to a theoretical portfolio of stocks selected by The Acquirer’s Multiple® from each of the Large Cap 1000, All Investable and Small and Micro Cap stock screens.
The backtest assumed the model bought and held for a year 30 stocks selected from each of the universes (the Large Cap 1000 screen draws from the largest 1,000 stocks; the All Investable screen draws from the largest half of stocks by market capitalization; and the Small and Micro Cap screen draws from the smallest half by market capitalization–see the Guide to the Three Universes for more information).
Each screen was rebalanced on the first day of the year using the most recent fundamental data. The backtest ran from January 2, 1999 to date. We excluded utilities and financials, and stocks traded over-the-counter (OTC).
Over the full period, the All Investable screen generated the highest total return of 6,765 percent, or a CAGR of 25.0 percent per year. The Small and Micro Cap screen generated the second highest total return of 3,948 percent, or a compound growth rate (CAGR) of 21.5 percent per year. The Large Cap 1000 generated the lowest total return of 2,797 percent, or 19.3 percent per year compound.
All beat their respective benchmarks.
Yearly Returns from January 2, 1999 to Date
Chart 2.1 The Acquirer’s Multiple® Large Cap 1000
The Acquirer’s Multiple® Large Cap 1000 model portfolios have generally outperformed, although underperformed in 1999 (-6 percent), 2008 (-10 percent), 2014 (-3.6 percent), and 2015 (-12.8 percent).
Chart 2.2 The Acquirer’s Multiple® All Investable
The Acquirer’s Multiple® All Investable model portfolios have generally outperformed, although underperformed in 1999 (-1.6 percent), 2012 (-5.5 percent), 2014 (-11.1 percent), 2015 (-19.2 percent) and 2017 to date (-22.4 percent).
Chart 2.3 The Acquirer’s Multiple® Small and Micro
The Acquirer’s Multiple® Small and Micro model portfolios generally outperformed, although underperformed in 2008 (-6.5 percent), 2012 (-0.3 percent), 2014 (-1.0 percent), 2015 (-12.3 percent), and 2017 to date (-4.9 percent).
Chart 3. Drawdowns from January 2, 1999 to Date
The Large Cap 1000 Screen saw the largest drawdown of 66 percent, which occurred between July 2007 and March 2009. The worst drawdown for the All Investable screen was -45 percent, and -64 percent for the Small and Micro Cap .
The 30-stock screen selected by The Acquirer’s Multiple® from each of the Large Cap 1000, All Investable and Small and Micro Cap universes consistently outperformed the broader Russell 1000 TR, Russell 2000 TR and Russell 3000 TR. The trade off is periodic underperformance–approximately one in four years–and deeper and more frequent drawdowns.
3. Don’t Mess With the Screens – Human Intervention Hurts Your Performance.
Disclaimer: Backtested performance does not represent actual performance and should not be interpreted as an indication of such performance. Actual performance may be materially lower than that of the backtested screen. Backtested performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investor’s decision-making process if the investor was actually managing money. Backtested performance also differs from actual performance because it is achieved through the retroactive application of model screen (in this case, The Acquirer’s Multiple®) designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable.