Quantitative Strategies

SCP has developed disciplined investment processes that rely on quantitative analysis to help identify what we believe are the most attractive opportunities. The firm believes that unique characteristics of domestic small cap and micro cap equities promotes the use of a quantitatively driven investment process.

Quantitative Investment Process

Click the steps below for more information.

SCP utilizes a weekly report appraising various quantitative factors, providing a ranked list of companies within each sector. Portfolio Managers use the ranking system to narrow the field of candidates to provide a consistent set of metrics to analyze how the companies rank over time.

Components of Superfactors include, but are not limited to:

Valuation

  • Free Cash Flow Yield (FCF/EV)
  • Earnings Yield (E/P)
  • Book to Market (B/P)
  • Sales Yield (S/P)
  • Dividend Yield

Quality

  • Economic Returns (ROE, ROA)
  • Balance Sheet Strength
  • Earnings Quality & Consistency
  • Capital Allocation History

Market Reaction

  • Estimate Revisions
  • Relative Strength
  • Stock Price Trend
  • Liquidity

The investment team conducts additional analysis to evaluate each company’s strengths, liquidity, and weaknesses.

Risk Flags

  • Unsustainable Earnings
  • Unsustainable Cash Flows
  • Insider Selling on Price Weakness
  • Issuer of Equity
  • Issuer of Debt
  • “Transformational” M&A
  • Bankruptcy Risk
  • Short Selling Activity

Liquidity

  • Median Daily Dollar Volume
  • Bid-Ask Spread
  • Shareholder Composition
  • Free Float Percentage
  • ETF Ownership
  • Index Membership
  • Option Availability

Positive Flags

  • Insider Buying
  • Insider Ownership
  • Compounder of Capital
  • Accretive Share Buybacks
  • Growing Dividends
  • Business Improvement YOY
  • SCP “APGAR” Score

Buy Considerations

  • Favorable Valuation Ranking
  • Favorable Model Aggregate Ranking
  • No more than one Risk Flag
  • Industry Group Diversity

Sell Considerations

  • Deterioration in Valuation Ranking
  • Deterioration in Model Aggregate Rankings
  • Appearance of multiple Risk Flags
  • A more attractive investment opportunity exists in another company

General Guidelines for Portfolio Construction

  • Build concentrated positions in companies, industries, and sectors that are quantitatively attractive
  • Invest with the preference for a long-term time horizon
  • Understand transaction costs and aim to minimize them
  • We do not constrain the portfolio to any systematic risk factors