Quantitative investing – going global

One of the great things about learning how to do your own Quantitative screening is that once you’ve mastered the basics and learned how to implement popular screens you can then customize screens to fit your investment style, new ideas, etc… In this post I’ll take a look at how we can modify the basic O’Shaugnnessy Value Composite 2 and Trending Value screens  to look outside the US for stocks. The basics of implementing the O’Shaughnessy screens can be found in this post and the previous posts referenced there.

The inspiration for this post comes from the apparent value in non US stocks  vs US stocks. Many investment managers and bloggers have commented on the value in non-US stocks recently. O’Shaughnnessy recently put out a piece on this very topic. The chart below compares US vs non-US dividend payers showing that non-US dividend stocks are a better value.

Similarly with other metrics, like CAPE (Cyclically Adjusted PE Ratio), the US markets are relatively more expensive than many global markets. See the chart in this post from Mebane Faber. Great, lets go find some cheap non-US stocks.

The biggest challenge to quantitative screening for non-US stocks is having access to data without paying high fees. I haven’t found a FINVIZ or Stock Investor Pro for any foreign markets. The closest one I’ve found is the one provided at the Financial Times. Fortunately, there are many foreign stocks that trade in the US markets. That means that we can use the same tools as before to find non-US stocks. Of course, that certainly limits our investment universe but it should be good enough to find enough non-US stocks with good value characteristics. Foreign stocks in the US either trade as ADRs or they trade on the OTC market. For this screen I limit the screens to ADRs only. OTC stocks may have data integrity issues since they are not subject to the same listing requirements as ADRs. Now, you can just run the Value Composite 2 and Trending Value screens and limit the database to ADRs only. Or you could exclude ADRs and screen only for US stocks. I did both of these to compare the relative valuation for US and non US stocks traded in the US markets. The results are below.

These results confirm that non-US stocks are currently better valued than US stocks. And below is the results of the value composite 2 screen for non-US stocks only. As always, this is just an example run. I’ve done no further research on the stocks or backtesting of this screen.

Lots of emerging market stocks on the list which also aligns with the list of low CAPE countries. And that’s it. Now you can screen for non-US value and trending value stocks. Currently, they are offering some great value which in the longer run leads to better investment results.

In summary, once you master the basics of stock screening you can extend your favorite screens to fit your investment style, your future outlook, etc… Here I showed how the O’Shaughnessy VC2 and TV screens can be used on non-US stocks. Obviously, this is just the beginning of what you could do but I do think it is important to stick with the basic factors that work over the long term; size, value, and momentum.

P.S. For non US readers of the blog. Are you aware of any tools like FINVIZ or Stock Investor Pro for your market?