Even money management firms equipped with large research teams can find it challenging to comprehensively analyze the broad international investment universe for the best opportunities. In this month’s update, we examine how Relative Strength analysis is used to comprehensively rank companies in the international investment universe— a true meritocracy that positions us to succeed in identifying opportunities. Companies that are strong technically also tend to have very dynamic fundamentals. Given the YTD performance of our Systematic RS International portfolio, we take a moment to closely examine some of those dynamic companies that have risen to the top.
First, let’s take a look at Asset Class, Sector and Capitalization Performance.
What’s Hot…and Not
Below is an overview of how different Asset Classes have performed over the past 12 months, six months, and month. Never before has it been easier for investors to invest in the strongest trends wherever they might be found in the world. Relative strength offers a disciplined framework for allocating among those trends. Markets are global and your portfolio should be too. As of 11/12/19:
Past performance is not indicative of future results.
See disclosures in Appendix A, which includes the ETFs and Indexes used for this performance table. Performance numbers include dividends but do not include all transaction costs. Investors cannot invest directly in an index. Indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.
High RS Asset Class
High RS stocks, as an asset class, can move independently of broad indexes. As of 11/12/19:
See disclosures in Appendix A.
Total estimated inflows to long-term mutual funds and net exchange traded fund (ETF) issuance collected by The Investment Company Institute.
See disclosures in Appendix A.
Sector and Capitalization Performance
See disclosures in Appendix A.
High RS Diffusion Index
As of 11/12/19:
The 10-day moving average of this index is 66% and the one-day reading is also 66%. In July this index was over 90% so it has pulled back some in recent months. Pullbacks in this index may provide good opportunities to add to relative strength strategies.
See disclosures in Appendix A.
Relative Strength Spread
The chart below is the spread between the relative strength leaders and relative strength laggards (universe of mid and large cap stocks). When the chart is rising, relative strength leaders are performing better than relative strength laggards. As of 11/12/19:
The RS Spread has been fairly volatile lately, declining sharply the first couple weeks of September and then rising for a couple weeks and then declining again for most of the last several weeks. We expect that the RS leaders will outperform the RS laggards over time, but RS laggards have made some strong moves over the last couple of months.
See disclosures in Appendix A.
Know What You Own, International Edition
We thought it would be of interest to you and your clients to have a better feel for the nature of the businesses that we currently own in our Systematic RS International Portfolio. We are proud of the excellent results since inception and YTD of this strategy. Below, you will find our current holdings, with some information about their business and their annual revenue. Some of these holdings are household names and play a critical role in the global economy. It is likely that you haven’t heard of some of the other holdings but we do think you will find it of interest to learn about the role that they play in their local economy and get a sense for the growth prospects of these companies.
Ultimately, it is difficult for even money management firms with extremely large research staffs to comprehensively analyze a broad international investment universe for the best opportunities. That is why we believe that we are so well positioned to succeed—we rely on our relative strength analysis to comprehensively rank all companies in our investment universe—a true meritocracy. Companies that are strong technically are usually strong because they have very dynamic fundamentals and we believe that the information below will give you a sense for just the type of dynamic companies that our relative strength process has led us to.
SYSTEMATIC RELATIVE STRENGTH INTERNATIONAL
Current Holding as of November 11, 2019 | Source: Factset and Dorsey Wright
Nice Ltd. (NICE) an Israel software services company that works with clients on financial crime prevention and compliance, public safety and fraud prevention.
Galapagos NV (GLPG) is a Netherlands based biotechnology company that engages in the identification and development of small molecule and antibody therapies. It operates through the Research and Development and Fee-for-Services segment.
Mercadolibre Ltd. (MELI) operates an e-commerce platform out of Argentina with customers across much of Latin America. The firm focuses on the back bone of e-commerce transactions by providing mechanisms for buying, selling and payment, as well as lead generation.
WNS (Holdings) Limited (WNS) is an India-based global business process management company with customers across Asia, Africa and Europe. It offers comprehensive data, voice, analytical and business transformation services with a blended onshore, nearshore and offshore delivery model.
Argenx SE (ARGX) is a Netherlands based clinical-stage biotechnology company, which engages in the development of antibody-based therapies for the treatment of autoimmune diseases and cancer.
Airbus SE (EADSY) is a French company that focuses on the design, manufacturing, delivery and provision of aerospace products, space, and related services. Airbus has a global customer base spread over its many different divisions.
Fly Leasing Limited (FLY) is headquartered in Ireland, it engages in purchasing and leasing of aircrafts. It focuses on acquiring and leasing the modern fuel-efficient commercial aircraft, which are in strong demand around the world.
AngloGold Ashanti Limited (AU) is a mining and exploration company. It explores, mines, and produces gold. The company was founded in 1944 and is headquartered in Johannesburg, South Africa.
Allegion PLC (ALLE) is based in Irelands and provides security products and solutions that keep people safe, secure and productive. It operates through the following three geographic segments: Americas; Middle East, India, and Africa (EMEIA); and Asia Pacific
COSAN Limited (CZZ) Is Brazilian company the focuses on the production, distribution and transportation of renewable energy sources. The company has several segments that target different segments of the market and different areas in Latin America.
Infosys Limited (INFY) is and Indian digital services and consulting company, which engages in the provision of end-to-end business solutions. It operates through the following segments: Financial Services; Retail; Communication; Energy, Utilities, Resources, and Services; Manufacturing; Hi-Tech; Life Sciences; and All Other.
GOL Linhas Aereas Inteligentes S.A. (GOL) IS A Brazilian company that provides scheduled air transportation for passengers and cargo throughout Brazil and across Latin America. It operates its business through the Air Transportation and Loyalty Program segments.
LVMH Moet Hennessy Louis Vuitton SE (LVMUY) is a French company that engages in the manufacture of luxury goods. It operates through the following business segments: Wines & Spirits, Fashion & Leather Goods, Perfumes & Cosmetics, Watches & Jewelry, Selective Retailing, and Other Activities & Eliminations.
Nestle S.A. (NSRGY) is a nutrition, health and wellness company, which engages in the manufacture, supply and production of prepared dishes and cooking aids, milk-based products, pharmaceuticals and ophthalmic goods, baby foods and cereals. The company products portfolio includes powdered and liquid beverages, water, milk products and ice cream, nutrition and health science, prepared dishes and cooking aids, confectionery, and pet care.
Astrazeneca PLC (AZN) is a UK-based company that engages in the research, development and manufacturing of pharmaceutical products. The company produces and commercializes medicines for gastrointestinal, cardiovascular, neuroscience, respiratory and inflammation, oncology, and infectious diseases.
Centrais Eletricas Brasileiras SA-Eletrobras (EBR) engages in the production and dissemination of electricity throughout Brazil.
Smith & Nephew PLC (SNN) is a UK-based company that has a global reach in the development, manufacture, marketing, and sale of medical devices. It offers the following products and services: sports medicine joint repair; arthroscopic enabling technologies; trauma and extremities; other surgical businesses; knee and hip implants, and advanced wound care, wound bioactives, and wound devices.
ICON Plc (ICLR) is an Ireland based clinical research organization, which engages in the provision of outsourced development services to the pharmaceutical, biotechnology, and medical device industries. It specializes in the strategic development, management and analysis of programs that support clinical development.
ZTO Express (Cayman) Inc. (ZTO) is a Chinese company that engages in the provision of express delivery and value-added logistics services through a nationwide network partner. It offers digital and privacy waybill, and cloud printing.
Diageo plc Sponsored ADR (DEO) is a Uk based company that is in the production and distribution of alcoholic beverages across the globe. Its brands include Johnnie Walker, Crown Royal, JeB, Buchanan's, Windsor and Bushmills whiskies, Smirnoff, Ciroc and Ketel One vodkas, Captain Morgan, Baileys, Don Julio, Tanqueray, and Guinness.
ASML Holding NV (ASML) is based in the Netherlands focuses on the development, production, marketing, sale and servicing of advanced semiconductor equipment, consisting of lithography related systems. It mainly caters the makers of memory chips and logic chips.
New Oriental Education & Technology Group, Inc. (EDU) is a Chinese company that operates through the Language Training and Test Preparation Courses, and Others segments. The Others segment includes online education, content development and distribution, overseas study consulting services, pre-school education, primary and secondary school education, and study tour.
Companhia Energetica de Minas Gerais SA (CIG) engages in the generation, transmission, distribution and sale of electricity, gas distribution, telecommunications and the provision of energy solutions throughout Brazil.
Novartis AG (NVS) is based in Switzerland and engages in the development, manufacture, and marketing of healthcare products. Through a portfolio of companies, Novartis has interests in pharmaceutical innovation, manufacturing and sale across the health industry.
TAL Education Group (TAL) is a Chinese education company that engages in the provision of after-school tutoring programs for primary and secondary school students. Its services are delivered through small classes; personalized premium services, such as one-on-one tutoring; and online course offerings for primary and middle school students.
SAP SE (SAP) is a German enterprise application software, analytics and business Intelligence Company, which provides enterprise application software and software-related services. The main focus is the Applications, Technology & Services segment that focuses on the sale of software licenses, subscriptions to cloud applications, and related services, which support various professional and premium services, as well as implementation of software products and education services.
Dr. Reddy's Laboratories Ltd. (RDY) is an Indian company that focuses on the manufacture and marketing of pharmaceutical products. It operates through the following segments: Global Generics, Pharmaceutical Services and Active Ingredients, Proprietary Products, and Others.
NXP Semiconductors NV (NXPI) is a holding company based in the Netherlands, which engages in the provision of semiconductor solutions. It focuses on high performance mixed signal (HMPS) to satisfy their system and sub-systems needs across the application areas such as automotive, identification, mobile, consumer, computing, wireless infrastructure, lighting and industrial, and software solutions for mobile phones.
Alcon, Inc. (ALC) is a Switzerland based company that engages in the development, manufacture, and marketing of market surgical equipment and devices, pharmaceutical eye drops, and consumer vision care products to treat eye diseases and disorders.
PT Telekomunikasi Indonesia (Persero) Tbk. (TLK) is based in Indonesia and engages in the provision of telecommunications, information, and network services. It operates through the following business segments: Mobile, Consumer, Enterprise, Wholesale and International Business (WIB), and Others.
Sibanye-Stillwater Ltd. (SBGL) mines for precious metals in South Africa including palladium, platinum, gold and associated metals.
BRF SA (BRFS) is a Brazilian company that produces and sells fresh meat, processed foods, pasta, sauce, mayonnaise, frozen vegetables, and soybean byproducts. It operates through the following business segments: Brazil, Halal, International, and Other.
ICICI Bank Ltd. (IBN) Is an Indian company that engages in the provision of banking and financial services, which includes retail banking, corporate banking, and treasury operations. It operates through the following segments: Retail Banking, Wholesale Banking, Treasury, and Other Banking.
Infosys Ltd. (INFY) is a Indian digital services and consulting company, which engages in the provision of end-to-end business solutions. It operates through the following segments: Financial Services; Retail; Communication; Energy, Utilities, Resources, and Services; Manufacturing; Hi-Tech; Life Sciences
Oil Co. LUKOIL PJSC (LUKOY) engages in the exploration, production, refining, marketing and distribution of oil. It operates through the following segments: Exploration & Production; Refining, Marketing & Distribution; and Corporate.
Royal Philips NV (PHG) is a technology company based in the Netherlands, which engages in the healthcare, lighting, and consumer well-being markets. It operates through the following segments: Personal Health, Diagnosis & Treatment, Connected Care & Health Informatics, and Other.
Portfolio information is current as of November 11, 2019 and is subject to change without notice. Please contact us at firstname.lastname@example.org for a full list of the last 12 months of holdings.
Other Relative Strength Sources
- Brush, John S. "Eight Relative Strength Models Compared." Journal of Portfolio Management (1986).
- Berger, Israel, Moskowitz. "The Case for Momentum Investing." AQR Capital Management. 2009.
- Jegadeesh and Titman. "Returns to Buying Winners and Selling Losers." Journal of Finance (1993).
- O'Shaughnessy, James P. What Works on Wall Street. McGraw Hill, 1997.