Every quarter, Wall Street analysts project company earnings. Every day, alpha-DNA utilizes machine learning to study the digital footprints of these companies. Then we compare these digital trajectories to the published projections. Where we find divergence...we find earnings surprises. Our investors win.
It's about seeing growth - before the competition does
Not predicting it, but seeing it as it happens. Seeing it in such a timely fashion that you can invest in it before corporate headquarters reports quarterly.
A company’s digital footprint makes this possible. Today, every B2B or B2C action produces a direct signal or echo online. Combining such data points generates a trajectory built from past and present patterns. The myriad data sources capturing these actions allow for cleaning and cross-checking.
If a company's digital signal (i.e. change in trajectory) varies from near term market expectations, it's an investment opportunity. We now have enough real market experience to know that these signals work. Repeatedly.
Today, February 26th, is a re-balance day for the IAS portfolios. Our digital signals have been updated and the feedback loop from earnings results have been processed. Our portfolios are turning over by about 50% today.
But you will also note one other subtle change in the IAS Equity Long/Short and the IAS Best Picks portfolio. The portfolios have been increased to around 50 stocks from previously holding around 30 picks. The resulting portfolio is more diversified and provides for better scalability of the trading.
The extra positions are all large cap and mid-cap positions - but mostly large cap. The extra picks are driven by the algorithms we have been discussing in this blog over the past year: the analyst revisions algorithms.
The revisions algorithms is built to be more sensitive to analyst revisions and better at predicting analyst revisions which will drive stock performance. We have mentioned these algorithms for some time this past year. These algorithms have been in production for over a year and we are excited to drive additional opportunities to find surprises thru these additional picks.
The markets had an unfamiliar week, didn’t they? We haven’t seen a down week like this since 2016 before the elections! The markets were down around 4% this week. And of course, that has lots of clients and advisors asking our opinions.
At Alpha DNA, we observe the markets thru the lens of our Internet Advantage Strategies (IAS). Our IAS strategies aim to provide excess return thru two sources: (1) Stock selection of companies that will deliver surprise revenue and EPS performance; and, (2) Adjusting our net exposure as market signals show weakness.
Let’s examine where IAS stands on both of these two fronts and the implications for the current markets.
First, our stock selection is built around finding firms that are growing revenue and EPS faster than Wall Street analysts are projecting. We call it the surprise factor. Over the intermediate and long run, if we find surprises, we would expect our portfolio to out-perform.
The IAS strategy made a significant posture change today. And it was a rare posture change for us. First, some background:
Markets tend to reward companies that are growing faster than expectations. Growth is always a factor that attracts a premium in stock price.
But there are market conditions that will cause successful growth companies to lose their premium on a temporary basis:
Investor Rotations to Value from Growth
Policy change that benefits specific industries
We believe the last week’s performance has been driven principally by policy. One can see that investors are already picking the winners from the tax changes approved by Congress. Investors are bidding up the players they expect to be winners. The result is higher multiple expansion for value and industries that Congress provided policy benefits.
The market is getting out in front and bidding up these perceived winners. But history tells us that this could be temporary. Successful growth stocks will eventually get a bid up again – and likely soon in our opinion. In fact, it will likely occur just as soon as the analyst community finishes digesting the tax policy changes and adjusts expectations accordingly.