Numeric International Small Cap

The investment objective of Numeric’s International Small Cap Strategy is to outperform the MSCI World ex US Small Cap® Index, on average, after fees. Key features of the strategy are:

  • Diversified portfolio managed by implementing diversified array of quantitative models using fundamentally-based inputs
  • Portfolio construction and risk control seek to maximize alpha exposure while minimizing economic risk exposures to the benchmark
  • Bottom-up stock selection from a broad stock universe
  • Overseen by experienced Portfolio Management and Research teams

Approach

Numeric believes that, in aggregate, markets are efficient and real economic performance drives returns. However, over certain time periods, markets are inefficient - stock prices fluctuate more than the underlying information set and all new significant information is not perfectly priced. Numeric believes these inefficiencies can best be exploited through the systematic implementation of quantitative analytical tools designed to capture financial and behavioral reaction to information.

Numeric’s proprietary Valuation and Information Flow models are utilized to select stocks based on our longstanding investment philosophy. The disciplined portfolio construction process is designed to attempt to capture alpha and control sector, country and stock-specific exposure.

Investment Strategy

Numeric’s International Small Cap strategy is managed with a focus on quantitative, bottom-up stock-selection via a systematic and disciplined process. It aims to produce portfolios with consistent returns through time. We strive to deliver excess returns by closely managing the strategy’s capacity and devoting significant resources that seek to continually improve our process.

We build portfolios by identifying attractive stocks using a fundamental, systematically implemented process via two primary selection criteria: Valuation and Information Flow. Models within these groups try to identify the market’s pockets of inefficiency. As stock prices fluctuate and deviate from underlying information flow and fundamentals there are opportunities to profit by identifying and efficiently implementing these investments.

Valuation models seek to identify companies that are mispriced relative to their projected earnings, cash flow, growth, and quality. Information Flow models analyze actions of various market participants, i.e. analysts, corporate management, and other informed investors, to aid us in forecasting a company’s business momentum and the direction of its earnings expectations.

Our systematic investment process allows us to efficiently collect and process fresh data and incorporate the information into the portfolio. We maintain the benefits of manual oversight by having our portfolio managers evaluate all trades for data accuracy as well as news flow and special circumstances.

Risk Management

We define risk management as the process of identifying, assessing and controlling both enterprise and portfolio risks with the aim of minimizing unanticipated and uncompensated risks. Risk control is an embedded component of our entire investment process and is built directly into our proprietary quantitative stock selection models and portfolio construction. We apply strict cash, sector, industry, country and stock-specific position controls in conjunction with our proprietary Statistical Factor Risk Model (SFRM).

We have an extensive suite of both internally and externally developed real-time risk monitors to identify and measure intended/unintended risks in the portfolio. External tools include Barra. Internally, risk characteristics are built into our proprietary quantitative stock selection models.

As a part of the portfolio construction process, we utilize our SFRM as a part of our heuristics-based risk control approach. This model focuses on a variety of risk factors, which the market identifies and responds to at any given time, and is designed to help ensure that the portfolio is neutral to the benchmark on these key risk attributes. The combination of constraining risks identified by the SFRM and the portfolio exposure constraints relative to the benchmark potentially allows us to maintain our alpha capability while lowering the risk of the portfolio.