Implementing a Systematic Long-only Quality Strategy in the Singapore Market

23 Pages Posted: 4 Dec 2019

Date Written: December 2, 2019

Abstract

We believe investors should be willing to pay a higher price for higher quality companies. We build a composite quality score, including one which incorporates publicly available ESG scores, using 'off-the-shelf' criteria and publicly available financial data and show that a quarterly-rebalanced, long-only portfolio of top-decile stocks selected using our score in Singapore significantly outperforms the Straits Times Index - both in terms of absolute returns (by 7.93% pa) and risk adjusted returns - while having an moderate annual turnover (a mean turnover of 48.41% ). We show that our quality score predicts the persistence of quality for up to 3 years and there is a weak relationship between the price multiple and the quality score. Furthermore, we demonstrate that quality needs to be reviewed regularly - and the moderate turnover ensures this. In the absence of cheap ETFs to get systematic exposure to quality, the systematic long-only strategy using 'off-the-shelf' criteria provides a practical, executable systematic investment methodology that exposes an investor to quality in the Singapore market. We show that ESG data using the database we used is not yet comprehensive enough to build a robust systematic quality score.

Keywords: Accounting Variables, ESG, Factors, Growth, Singapore, Investing, Profitability, Quality, Quantitative, Safety, Systematic

JEL Classification: G1, G11, G14

Suggested Citation

Raju, Rajan, Implementing a Systematic Long-only Quality Strategy in the Singapore Market (December 2, 2019). Available at SSRN: https://ssrn.com/abstract=3496906 or http://dx.doi.org/10.2139/ssrn.3496906

Rajan Raju (Contact Author)

Invespar Pte Ltd ( email )

Singapore

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