A NEW RESEARCH SERVICE: A subscription to QInsight’s research newsletter will help investment managers identify industry sectors, asset classes or style indexes expected to outperform broad stock indexes.
INDUSTRY GROUP, ASSET CLASS AND STYLE INDEX RETURNS ARE PREDICTABLE: QInsight has developed several quantitative portfolio models that adapt to the changing business cycle. Clusters of macroeconomic variables are used to identify phases of the US business cycle (back to 1970) and historical analysis of those phases identifies industry groups, asset classes and style indexes that have outperformed during each phase of the business cycle.
WHY SHOULD I SUBSCRIBE TO THIS RESEARCH: QInsight’s extensive research shows that changes in the US economy directly affect the relative returns of industry groups in the US stock market. Industry group relative performance is predictable for business cycle phases. QInsight has developed and rigorously tested a specific method for allocating portfolios among industry groups (and Dow Jones sectors). Using this information QInsight created model portfolios for both industry groups and Dow Jones sectors that significantly outperform the benchmark S&P 500 index. See model portfolios in Section C and summary backtests in Appendix 3 of the enclosed sample newsletter.
WHO CAN USE THIS RESEARCH: Any portfolio manager or investor (with a “top-down”, “bottom-up,” “capitalization,” “value,” or “growth” style) can earn additional portfolio returns by aligning his or her stock or index portfolios with QInsight’s recommended model portfolios, and by analyzing QInsight’s research and observations.
IMPORTANCE OF THE BUSINESS CYCLE IN PORTFOLIO PERFORMANCE: The attached bar chart shows the annual returns that could have been achieved in the period between 1980 and 1996 by investing in the top 20 industry groups during each phase of the US business cycle. The top 20 industry groups outperformed the S&P 500 index by more than 10% annually. The phase durations, however, are not periodic (see Section D, page 29 of enclosed QAdvisor sample newsletter).
HISTORICAL BACKTEST AND MODEL PORTFOLIOS: QInsight’s subscription research includes a rigorous backtest (in-sample tests) and three model portfolios that will be updated on a quarterly basis:
SUBSCRIPTION INFORMATION: Here is what you will receive with an annual subscription to the Q-Advisor newsletter.
The basic newsletter subscription includes the reports described above plus electronic updates available on the QInsight web site (www.qinsight.com
NEW RESEARCH & DEVELOPMENT: The QInsight Group is committed to continuing research and development to improve its quantitative models. Two major R&D efforts planned for 2002 include:
For more information about The QInsight Group, please contact Dan Bender at (619) 295-9292, email him at bender@qinsight.com, or see our website at www.qinsight.com.
Potential Historical Outperformance
Returns that could have been achieved for the period 1980 to March, 1996, using the top 20 industry groups in each phase vs. returns of the S&P 500.
Five Phases of the US Business Cycle
PHASE
LEADING INDICATOR DESCRIPTION
Easeoff
The economy peaks and starts to decline. QInsight’s macro-economic variables include industrial production, hours worked, non-farm payroll employment and initial unemployment claims.
Plunge
The economy continues to decline while interest rates peak. Federal Reserve policy turns stimulative. QInsight’s macro-economic variables include interest rates and the adjusted monetary base.
Revival 1
The economy starts to recover while interest rates continue to decline. QInsight’s macro-economic variables include hours worked, initial unemployment claims, non-farm payrolls and industrial production.
Revival 2
Economy continues to strengthen and inflation begins to slowly rise. QInsight’s macro- economic variables include commodity price indexes, the consumer price index and capital spending.
Accelerate
The economy is growing so fast that the Federal Reserve will begin to tighten monetary and credit policies. QInsight’s macro-economic variables include the federal funds interest rate, the consumer price index and the adjusted monetary base.
