Stock Screens 

11 small caps on steroids

11 small caps on steroids

This column has a gap in its busy schedule of annually-reviewed screens, which provides the opportunity to introduce something new. The new screen I’m running draws on a paper by Brian Chingono and Daniel Rasmussen which was published in 2015 titled Leverage Small Value Equities. The paper details a strategy for buying highly-indebted, cheap, small companies that on average delivered annual returns that were 11.7 per cent ahead of the market based on the 12-month performance of 49 different 25-stock portfolios between the start of 1964 and end of 2014. It’s testament to Mr Chingono and Rasmussen’s belief in their research that they now run an investment firm, Verdad Capital, that manages “quant” funds based on their approach. What’s more, the firm’s global fund has produced annualised returns of 17 per cent in three years to mid-2018, beating 416 out of the 417 funds with three-year records in Morningstar’s Foreign Small/Mid Value and US Small Value categories (investment in this Verdad fund starts at $2m, so sadly it will be out of reach to many IC readers). 

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