New Constructs Long Model Diversified:
New Constructs is an expert in identifying transitory earnings distortions. These are one-off line items in a company’s earnings report that present a temporary state in time but could distort the true business outlook.
The long only model exploits conditions where the street gets a company's earnings outlook wrong. While temporary in nature, these one-off line items in a company’s earnings report could ultimately distort the true business outlook.This model seeks to specifically exploit earnings distortions by screening daily for all new 10Ks and 10Qs in the Russell 1000. It further identifies optimal conditions for entry (based on how wide the displacement is between the street and the model's outlook).The portfolio’s goal is to outperform the benchmark EQAL (Russell 1000 Equal Weight ETF) in risk adjusted return as measure by its Sharpe ratio
The model carries forward the following backtest execution guidelines:
- Every earnings date we project core earnings outlook against analysts outlook for the next quarterly earnings.
- Model is trained on a perpetual basis every quarter with an expanding window.
- To enable a fair comparison between different business sizes the earnings distortion are normalized by market cap.
- The model filters for relevant constituents daily.
- The constituents which hold negative distortions (which means, their earnings are negatively impacted, albeit temporarily) are identified.
- All held securities are equally weighted upon entry.
- Mini/Max allocations guideline are: 0.2%/1.7%
- Trailing Stop Loss of 3.5% is also enacted.
- Please note: This backtest simulates stop losses pessimistically and we expect real-time performance to be less punitive on stop loss exits.
- Positions are held conditionally as long as the buy signal remains active or until an exit criteria(Stop loss) is activated.
- The backtest considers slippage per transaction and commissions. See report below for additional details.