Balanced Composite | 2023 Q4
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Research continues to serve as the foundation of DeMarche’s advisory and discretionary practices. At the core of our research effort is the DeMarche Factor Model. This quantitative tool has identified more than 55 factors that, when combined, have significant explanatory and predictive power. Using cross-sectional and historical regressions, we test hundreds of market factors of various types.
On a routine basis, our model estimates a stock’s exposure to the 55 different fundamental, technical, macroeconomic, and industry factors in a cross-section of the U.S. equity market consisting of the 5,000 most liquid companies over the past 30 years. Through use of multivariate regression analysis, each stock is measured on its factor exposures and sensitivity to the market as a whole. This analysis is combined with historical payoffs (or contributing values to the stock’s returns) to calculate the stock’s current expected return. Each month, the DeMarche Factor Model ranks stocks from high to low in terms of expected returns relative to the overall market.
Although dynamic in its implementation, the DeMarche Factor Model has remained a consistent tool with broad applications since it’s founding in the mid 90’s. It has enabled us to be better equipped to help our clients understand both markets and managers, and ultimately build a better portfolio.