Glossary

Active investing involves trying to outperform the market by buying and selling individual stocks based on research and analysis. Passive investing involves investing in a portfolio of stocks that track a market index, with the goal of matching the overall market's performance. The main difference is the level of involvement and decision-making required. Active investing requires more effort and research, while passive investing is a more hands-off approach.

AAlpha refers to the amount by which a portfolio or investment has outperformed its benchmark or expected return.

Alpha signals, or insights, are used to inform investment decisions and construct portfolios that aim to outperform the market. These signals are often derived from quantitative analysis of various data sources, including financial statements, market data, news articles, and social media sentiment. Some common alpha signals include value, momentum, quality, volatility, and sentiment. Value signals look for stocks that are undervalued by the market, while momentum signals look for stocks that are trending upward. Quality signals assess a company's financial health and profitability, while volatility signals measure a stock's risk level. Sentiment signals analyse public opinion and market sentiment to identify potential market-moving events.

Australian large and small companies refer to the stocks of companies that are listed on the Australian Securities Exchange (ASX) and are categorized based on their market capitalisation. Large companies are typically those with a market capitalization of over AUD 10 billion, while Australian small companies have a market capitalization of less than AUD 2 billion.

A benchmark is a standard or point of reference against which the performance or quality of something can be measured. In investing, a benchmark is typically a specific index or set of indices that represent a particular segment of the market, such as the S&P 500 or ASX 200. Investment managers will often use a benchmark as a way to measure the performance of a portfolio or investment strategy. The goal is to achieve returns that outperform the benchmark, indicating that the investment strategy is successful. A benchmark can also be used as a way to assess the performance of a particular asset class or sector.

A benchmark unaware or benchmark-agnostic investing approach can allow more flexibility and diversification in a portfolio, as it is not limited by the composition of a benchmark. For example, if an investor uses the ASX200 as a benchmark, they would be limited to investing in the 200 largest companies listed on the Australian Securities Exchange (ASX). However, a benchmark-agnostic investor would have the flexibility to invest in a wider range of securities, including smaller companies or those that are not included in the benchmark. This can provide more diversification and potentially higher returns, but also involves more risk.

Leadership diversity can be a key driver in improving the organisational capital and performance. Board and senior management gender diversity can be seen to improve finance performance.

Capital growth refers to an increase in the value of an investment over time, often resulting from an increase in the market price of the asset. Income growth, on the other hand, refers to an increase in the income generated by an investment, typically from dividends, interest payments, or rental income. Both capital growth and income growth are key factors in determining the overall return on an investment.

Our proprietary carbon efficiency-based signals view carbon as a source of alpha, carbon relative to sales is a proxy for productive efficiency, where an improved ration means more revenue from the same inputs, therefore improved efficiency.

A core value portfolio is constructed using quantitative analysis to identify and weight stocks to provide an indication of a company’s fundamental value by looking at accounting metrics: sales, book value, cash flows and dividends.

Developed market equities refers to stocks of companies that are located in developed countries with advanced economies that are characterised by high levels of industrialisation, infrastructure, and social welfare.

Emerging market equities refer to stocks of companies that a located in developing countries – mainly in Asia, Eastern Europe and Latin America – with economies that are growing and expanding rapidly but have not yet reached Western standard. Emerging market equities may offer the potential for higher returns, however are often considered to be higher risk than developed market equities, as these economies are often subject to political instability, currency fluctuations and other risks.

Factor-based models are investment strategies that use statistical models to identify and exploit market inefficiencies. These models use a set of factors, or characteristics, that are believed to drive stock returns. By analysing these factors and selecting stocks that exhibit the desired characteristics, factor-based models aim to generate higher returns than the overall market. Factor-based models are often used in quantitative investing, which uses mathematical models and computer algorithms to make investment decisions. By using these models, investors can systematically analyse large amounts of data and identify investment opportunities that might not be apparent to traditional fundamental investment managers.

Fundamental investing is a strategy where investors analyse a company's financial statements, industry, and economic conditions to determine its intrinsic value. The goal of fundamental investing is to identify companies that have strong fundamentals but are believed to be undervalued by the market. This strategy requires significant research and analysis to identify undervalued companies with strong fundamentals.

Global small caps are stocks of companies with a relatively small market capitalization that operate in various countries around the world. Small cap companies are typically smaller and less established than large cap companies, and they may have less liquidity and be more volatile. However, they may also offer greater growth potential, as they have more room to expand and may be more nimble and adaptable than larger companies.

The intrinsic value of a company is the true or real value of the company based on its underlying fundamentals, such as its assets, earnings, growth potential, and other economic and financial factors. It is the perceived value of the company based on an assessment of its future cash flows, which are discounted to their present value using an appropriate discount rate. The book value of a company is the value of the company's assets as recorded on its balance sheet. The book value of a company is an accounting measure that provides a snapshot of the company's assets and liabilities at a particular point in time. However, the book value of a company may not necessarily reflect its true value or its future earning potential.

Market capitalisation is the total value of a company's outstanding shares of stock, calculated by multiplying the number of shares outstanding by the current market price per share.

A quant house is a financial firm that specializes in quantitative investing. In RQI’s case, we believe we have a team of highly skilled quantitative analysts, portfolio managers and researchers who develop and refine models and data-driven techniques to identify and capitalise on investment opportunities.

Quantitative active equities involves using mathematical and statistical models to identify and select stocks for investment, also known as systematic investing.

Quantitative active equity investing involves a variety of techniques and models to analyse data and make investment decisions. These may include factor-based models, which use statistical factors such as volatility to identify stocks with what appear to be attractive risk and return characteristics. Other techniques may include machine learning and artificial intelligence, which can be used to analyse large amounts of data in real time and identify patterns.

Value investing is an investment strategy that involves buying stocks that are believed to be undervalued by the market – stocks whose share price does not reflect the intrinsic or book value of the company.

Value investors seek ‘cheap’ stocks that the broader market might be underestimating, which can reward the investor in the long-term as the market realises the intrinsic worth of the stock. However, investors must also exercise caution to avoid value traps – a stock that appears to be cheap at face value but fails to perform as expected.

Value-tilt is an investment strategy that involves overweighting or tilting a portfolio towards stocks that are considered undervalued by the market. This strategy is based on the belief that the market is not always efficient and that some stocks may be mispriced, offering the potential for higher returns. Value-tilt strategies typically involve investing in companies with low price-to-earnings (P/E) ratios, low price-to-book (P/B) ratios, or high dividend yields. By focusing on these metrics, we identify stocks that are trading below their intrinsic value and have the potential to generate higher returns over the long term.

Yield refers to the income generated by an investment, typically expressed as a percentage of the investment's cost or current value, and represents the return on an investment.