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

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SCP utilizes a weekly report providing a ranked list of companies within each sector. Portfolio Managers use the ranking system to provide a consistent set of metrics of how the companies rank over time.

Components of Superfactors used for ranking 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

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