Microcap Trending Value
Microcap Trending Value is an investing strategy which selects for investment the microcap stocks with the highest momentum among the cheapest stocks in the universe. The strategy is inspired by Jim O'Shaunessy's strategy highlighted in What Works in Wall Street. Our implementation has generated returns of over 19% per year on average, with relatively low volatility, and low asset turnover.
Jim O'Sahunessy, in his book, What Works on Wall Street (4th edition) writes:
When looking at the best growth strategies...we'll see that uniting value factors with growth factors can offer outstanding performance. Essentially, you are looking for cheap stocks on the mend; they are still cheaply valued but are gaining price momentum. You can improve the performance further by focusing on investable microcap stocks.
Our implementation of the Microcap Trending Value strategy is implemented as follows:
- We start with a universe of all the stocks trading in NYSE with a market cap above the 20th percentile (about $30M) and up to the 40th percentile (about $200M)
- Liquidity - We eliminate stocks with less than $5K traded daily on average
- We filter stocks based on Valuation - we keep the cheapest 10% of stocks based on a Composite of Value Multiples (P/E, P/B, P/Sales, EV/EBITDA, P/FCF, Shareholder's Yield)
- We filter stocks based on Quarterly and Bi-Quarterly Momentum - We keep stocks that delivered positive returns during the last quarter AND during the last two wuarters, and eliminate the rest.
- We sort stocks based on Yearly Momentum - the higher the 52w returns, the higher the rank
Here are the results of a portfolio consisting of 25 stocks, equal weighted, rebalanced yearly, over a period of 19 years, between June 30th, 1999, and Junne 30th, 2018:
An amazing 19% average annual return vs. the Russell 2000 returns of 8.32% during the same 19 year period. A Sharpe ratio of 1.06, with a lower max drawdown than the market. Moreover, those results are achieved with asset turnover of 50.53% (i.e., selling and buying only half of the holdings every year) which ensures low taxes and low transaction costs. We believe that the results are absolutely amazing.
The Microcap Trending Value Screener
Price and valuation multiples are updated in 20min delay.
Last update date – see rightmost column
Microcap Trending Value Screener
How To Use The Screener:
The stocks are sorted based on 52-week returns in descending order, with the best stocks on top.
Based on our analysis, the best results are achieved when both the 13-week returns and 26-week returns are positive. This rule limits the number of stocks avialble for investments in bear markets, when almost all stocks have negative quarterly and bi-quarterly returns.
Use the slides above the table to tweak the screener according to your preferences:
The Market Cap Slider can be used to restrict the screener to smaller caps (for higher returns) or larger caps (for lower volatility). We recommend individual investors to keep the market cap un-restricted for the best overall results.
The 52w Returns Slider, 13w Returns Slider and 26w Return Slider can be used to restrict the screener to a returns threshold during those period.
To assist you with gaining insights on the stocks, we've included various Value & Quality attributes. The Value attributes are highlighted in Blue and the Quality attributes - in purple.
Each column can be sorted by clicking on its title.