SSgA introduces signal to predict price growth

State Street Global Advisors (SSgA) has this quarter introduced a ‘growth capability measure’ into its global quantitative process, meaning it will assess a company’s medium-term growth prospects for the first time.

A portfolio manager in SSgA’s global active equity group, Craig Scholl,said the new growth signal would incorporate proprietary measures such as a company’s R&D spending and margin growth relative to its peers. “;A lot of quants rely only on linear measures, and says things like a price of two times earnings is better than five times earnings. We ask, is it better than industry and better than its history?”; Scholl said. The first new fund to incorporate the mid-term growth signal is the Global Alpha Small Cap Fund, which has just enjoyed its first support anywhere in the world thanks to $80 million from an Australian super fund. Global small caps should not be always be thought of as a tactical or satellite play by investors, but rather as an option for the core portfolio, according to Scholl. “;Small caps are a better way to diversify than a series of regional large cap funds…The Qantases and Rio Tintoes you’ll pick up in an Australian large cap mandate are global companies that are very similar to big airlines or miners elsewhere in the world. The smaller stocks in developed markets tend to be the ones that are truly local, and accessible at about one-third the price of emerging markets mandates in custody and accounting terms,”; Scholl said. MSCI’s pending introduction of a “;purer”; small caps benchmark, due by March 31, supported the sector’s arrival as a “;mainstream”; asset class, he continued. SSgA’s Global Alpha Small Cap Fund will be neutral across style, capitalisation, industry and countries/regions, and target outperformance of the S&P/Citigroup EMI World Index of 3-4 per cent per annum over rolling three year periods, from a tracking error of approximately 4-5 per cent.