Performance Through Time – Risk-Return

0

 New York – For some time, Integrity Research has been doing quarterly evaluations of research providers that provide data to the Investars equity research performance measurement system. Having accumulated a number of quarters of data, we thought it might be of interest to see how these firms behave over time.

The results we have tabulated are the research providers synthetic returns for their buy portfolios in the year ended at quarter end of the cited quarter. Within the investars universe there are over 50 research providers that have data for all 11 quarters that Integrity has data for (Investars has more data than this).

There are, of course, more robust and complete ways to assess the performance of recommendations through time, but we look at three simple metrics including the top research providers according to best returns, the top research providers according to lowest volatility of returns, and the best research providers in terms of highest returns per unit of risk.

Top Returns

Research Provider

Average Return (bps per day)

Volatility

Taglich Brothers

9.61

20.65

Goldman Sachs

2.52

12.03

Rochdale

2.39

11.72

Taglich Brothers has been at the top of the leader board many times in the past. We have noted that firms, such as Taglich, with smaller coverage lists tend to be at the top of the leader board, but also at the bottom, because they tend to have more volatile returns than other firms with larger coverage lists. Indeed Taglich has very high variability of returns assessed across the quarterly data. Goldman and Rochdale also had positive average returns, albeit lower returns alongside lower volatility.

Lowest Volatility of Returns

Research Provider

Average Return (bps per day)

Volatility

Fundamental Research Corp

-0.28

5.69

Beacon Equity Research

-4.48

5.99

SunTrust Robinson Humphrey

-2.09

6.31

Another way that we can assess the volatility of returns of the research provides in terms of those that have the lowest volatility of returns. Those firms have the most consistent returns were Fundamental Research Corp, Beacon Equity Research and SunTrust. While these firms were consistent, their average returns were also not very exciting. Obviously, we need a better measure of performance that includes both volatility and return.

Highest Return per unit of Risk

Research Provider

Average Return

Volatility

Return/Volatility

Taglich Brothers

9.61

20.65

.465

Boenning & Scattergood

1.59

7.42

.214

Goldman Sachs

2.52

12.03

.209

Most investment decisions are made in risk-return space, so why not research. we admit that our approach is really more like meatball surgery than finance theory, but some information can be gleaned from this analysis. Of interest Taglich Brothers, while having one of the highest levels of volatility, offered outsized returns commensurate with that risk. As such, its return per unit of risk is a lofty .465, compared to the next best ratio of .214 for Goldman.

Note: The return per unit of risk is really the inverse of the familiar coefficient of variation, which would be the risk per unit of return.

Share.

About Author

Leave A Reply