Equities Risk

More details on value, growth and profitability factor mimicking portfolios

Synopsis

Here we present more details on the return characteristics of the factor mimicking portfolios designed to capture the influence of various firm attributes related to value/growth orientation and profitability. The portfolios are formed every December by sorting the universe of All Ordinaries Index stocks into terciles based on the attribute of interest. The factor mimicking portfolio returns are the monthly return spread between the top tercile portfolio and the bottom tercile portfolio. Relative volatility is the ratio of the factor mimicking portfolio volatility to the volatility of the return spread of randomly assigned tercile portfolios.

Table 1. Return characteristics of factor mimicking portfolios related to value, growth and profitability.
Factor	Minimum	25th percentile	75th percentile	Maximum	Standard deviation	Relative volatility
Book to market	-0.146	-0.023	0.023	0.146	0.043	2.431
Earnings to price	-0.110	-0.016	0.034	0.155	0.040	2.076
Operating cashflow / Market cap	-0.103	-0.010	0.040	0.131	0.037	1.974
Dividend yield	-0.200	-0.015	0.019	0.072	0.031	1.548
Return on equity	-0.106	-0.018	0.038	0.131	0.041	2.427
Return on assets	-0.097	-0.011	0.041	0.129	0.041	1.919
Operating cashflow / Assets	-0.092	-0.005	0.037	0.105	0.035	1.840

Factor mimicking portfolio total return indices

Factor mimicking portfolios based on book-to-market — Figure 1. Total return indexes of factor mimicking portfolios based on book to market.

Factor mimicking portfolios based on operating cashflow / market cap — Figure 3. Total return indexes of factor mimicking portfolios based on the ratio operating cashflow / market cap.

Factor mimicking portfolios based on dividend yield — Figure 4. Total return indexes of factor mimicking portfolios based on dividend yield.

Factor mimicking portfolios based on return on equity — Figure 5. Total return indexes of factor mimicking portfolios based on return on equity.

Factor mimicking portfolios based on return on assets — Figure 6. Total return indexes of factor mimicking portfolios based on return on assets.

Factor mimicking portfolios based on operating cashflow / assets — Figure 7. Total return indexes of factor mimicking portfolios based on the ratio of operating cashflow / assets.