Quotient Focused Market Neutral
Return and Risk Targets
Quotient Focused Market Neutral seeks to outperform T-bills over a full market cycle targeting an annualized excess return of 5% with a tracking error of 10.0%. Quotient Focused Market Neutral is designed to be market neutral and offer and excess return over T-Bills.
Quotient evaluates a large cap universe of 1800 stocks daily to seek investment opportunities. The firm's focus is on stock selection which is driven by Quotient's insights into the valuation of companies operating within an industry. The valuation models incorporate fundamental, technical, as well as value, growth, and momentum factors from multiple categories. Quotient looks at this information both in terms of relative comparisons between companies in the same industry and trends over time. Quotient builds a unique model for each industry based on the price drivers that are predictive in that industry. In total, there is a unique valuation model for each of the 56 industries that the firm follows. The combination of these industry models is designed to produce high risk-adjusted returns.
Portfolio Construction and Risk Control
The important factors for the portfolio construction process include company valuations, risk model forecasts, risk budgeting allocations, and transaction cost estimates. These data are used in a portfolio construction process to arrive at the target positions. Risk Management is integral to our disciplined quantitative process. The strategy is concentrated in industries where the valuation models are more robust and maintains a market neutral positions with a Beta close to zero.
The portfolio typically holds 100 stocks long and 100 stocks short with a holding period of 3 to 6 months. Quotient has been running a paper portfolio since January 2007 which is based on experience running long short portfolios since 1992. Quotient Focused Market Neutral is ready to be launched as soon as capital is received. The maximum net industry exposure is 2.0%. The maximum position size for a stock is 1.2% The overall exposure of style factors is constrained to avoid any significant style or capitalization bets. The strategy is offered as a separate account.