One of the cornerstones of our process is the observation that a “one size fits all” approach to equity selection ignores the realities of equity market dynamics. Through retrospective research we have identified that optimal equity selection factors change over time, driven by shifts in investor preferences through business and market cycles. Fortunately, these shifts display a level of consistency that makes them predictable through macro analysis. We call these different investor preference regimes Macro Environments.
Signal’s Macro Environment Identifier (MEI) employs Quantitative, Technical and Macro analyses to provide clients with a comprehensive assessment of the current Macro Environment. We also provide list of stocks with the top and bottom scores for each Macro Environment. The scores are derived from quantitative models optimized for each environment.
The generalizable Macro Environments we have identified include:
Risk On: Usually early cycle and generally characterized by a preference for a high degree of cyclical leverage.
Unusual: Typically later cycle and characterized by preferences for growth, and momentum.
Risk Off: Traditionally occurring at the end of a cycle or during other periods of general risk aversion and characterized by a general preference for defensive characteristics.
Our research shows that these shifts in investor preferences can be so dominant at times that they overwhelm virtually every other investment consideration. These tools enable our clients to make stock selection decisions that are best suited to the current Macro Environment.