Asset Management Assignment

Running head: ASSET MANAGEMENT 1
Asset Management
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Institution:
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Investment Philosophy
At ABC Asset management, market forces are the determinants of security selection. We
believe that for a market to be efficient at all costs, the biases of the individual investor will
greatly and fundamentally impact on the security of a company selection. The core believe of
ABC Asset management is that an investor will always react in an irrational way or manner
to influence the market price given new availability of information relation to any asset
(Fisher, Shah, & Titman, 2015). The investor will become susceptible and unconscious
anchoring that is brought about by market prices to floors and ceilings.Inefficiencies in the
market results in a stock being either undervalued or overvalued and at ABC Asset
management we believe that there has been too much emphasis placed on share price and its
performance to the detriment of the real and true valuation of the stock of the company
(Jegadeesh & Titman, 1993).
We implement the strategies of asset management due to these factors that affect the stock
price. Both momentum and investment value are the strategies that inefficiencies create
within the market.The strategies help in identifying the stocks that have been undervalued or
overvalued and we help the investor to make a prudent decision while investing.At ABC
Asset management, identifying the undervalued and overvalued assets or stocks by our team
help to make a decision that will be used by the investors in producing market returns that are
above the buying price of the investor. Strategies and investment philosophies should always
be used to give a better return to an investor or to manage the expectation of the investor in
case of losses. However, at ABC Asset management, it is our duty to use investing
philosophies that will eventually lead to good returns (Sharpe, 1992).
Investment Philosophy and Asset Management

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The investment strategies that we use at ABC Asset management are momentum and value
investing to goal of producing the greatest profit from our investing endevours. For ABC
asset management we are able to use signals in the market that are identified by the two
strategies. ABC asset management uses knowledge that we get from the two strategies to
invest by allowing us to use negative information signals from the market (Jegadeesh &
Titman, 1993). The two strategies enables us as ABC asset management to be exposed to
all information that is currently available in the market to be able to make better investment
decisions. The company invests in securities which based on past performance will have
momentum to carry them into the subsequent months. Momentum premium notion is what
we focus on to outperform the market (Fisher, Shah, & Titman, 2015). To be specific, we
target stocks which are 52 week high or close at that particular time. Traders use the 52 week
high as a point of reference in which they evaluate what would be the impact of any news on
the securities (Sharpe, 1992)
By investing on the top 25% of securities, we exploit the less perfect market conditions
created by the unwillingness by investors to breach the 52 week high. The choice by ABC
asset management to use momentum analysis is based on the evidence found (Sharpe, 1992),
which relates to the efficacy of the 52 week high portfolio and the momentum premium. The
momentum premium suggests that on average those who win realized returns that were
significantly higher as compared to the market. It also suggests that that abnormal returns
were only short lived, with over half of the securities returns dissipating in the two years that
follows. Therefore, as ABC asset management, we carry out annual rebalancing to
minimize or avoid the possibility of making significant loss over the years following the
development of the portfolio. On average, there was a monthly average of 1.24% in terms of
returned monthly wage for the 52 week high portfolio, which is much greater than the JT
portfolio that returned an average of 0.97% and MG portfolio which returned a monthly

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average of 0.50%. We then provide a portfolio based on the value that the securities can
provide us to get the maximum return (Sharpe, 1992)
In order to develop further the selection of stocks , ABC asset management company
introduced a screening process that enables us to determine the weight of the stocks that have
been identified by the 52 week high process. This allows us to have a greater in depth look
into under pricing severity that is caused by investor bias. At this company, we use the
dividend yield and book to market ratio as the two major methods of screening to come up
with a portfolio of the stocks that we want to invest in. This is done by the 52 week high
process. Under pricing is mostly reflected during these screens because individuals and
investors present personal bias towards the prices of the securities in a way that they give rise
to a value premium. Hence under pricing is what we as ABC asset management seeks to
exploit (Sharpe, 1992)
Divergences in momentum indicator
One way to anticipate variations in the trend of prices is the analysis of divergences between
the momentum indicator and the line of price variations, that is explained in the momentum
indicator analysis
Divergences in momentum indicator. The momentum strategy is based on the idea of
choosing actions that show a price increase, both in relative terms and in absolute terms. The
logic behind the momentum strategy is based on the persistence of the forces that govern the
markets and therefore, the values that rise higher, will continue to rise.
What is the Momentum strategy?
As I mentioned earlier the strategy of Momentum is based on the idea that the values that rise
higher, will continue to rise. The momentum indicator is a trend indicator, ie if the

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momentum is positive it implies that the price is growing gradually and a bullish strategy is
adequate. On the other hand, if the momentum is negative, it means that the previous level is
being lost and shows a downward trend (Keppler, 1991).
A momentum investor invests in assets that have good indicators at present and usually value
that the price is in an upward trend in the medium term. A momentum action is usually a
company that presents solid financial results, positive news flow and growing
recommendations from leading analysts.
To know more trading strategies do not hesitate to check this post: What is your trading
strategy
Trading Techniques for Investors.As we have seen in the post, the momentum strategy is
based mainly on the analysis of the momentum indicator and generally, the agreement of this
with the value of the price of the asset in question. Apparently it is a simple strategy, but it
requires both analysis of variations in indicators and information of all kinds about the
company in which we want to invest, making sure that our predictions can be coupled to the
financial reality of the same (Keppler, 1991).
The screens that were chosen are very effective in enabling us to produce abnormal profit.
Different studies have produced evidence that shows that investors tend to analyse the past
performance of a stock and extrapolate past book to market ratio which under prices low
book to market firms. (Keppler, 1991) suggested that book to market ratio is very effective
when one wants to determine the future price of a security. According to other studies,
various authors indicated that in an extensive period of time the market was out performed by
book to market ratio. ABC asset management secondary screen focuses on each individual
stocks profitability. Rebalancing annually allows our company to earn high dividends from
the yields of the stock.

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Scheme for weighing stocks in your portfolio
Weighing stocks within a portfolio is critical in order to maximize the return of our
investment. This process is done carefully because it complements the stocks selection.
Returns generated by the security can be greatly affected by the proportion that the portfolio
has been divided by. After the selection of the stocks have been conducted , we weight the
stocks selected based on their market capitalization. Firms with a big market capitalization
are apportioned with a larger portion of the portfolio. Those with a lesser market
capitalization are apportioned with a lesser portion of the portfolio. To provide optimal
returns in future, it is important to do a portfolio rebalancing that is carried out yearly
(Athanassakos, 2012)
Systematic Trading System
Selection Process
It is agreeable that the selection accounts on security are substantially variable in the returns
of portfolios.The selection of any security will envisage the beliefs of ABC Asset
management and the desires that are stated in the philosophy of the investment that is to
increase the returns of the stock. Our systematic trading systems a strategy that largely is
influenced by the momentum and value of the stock in investing across the year.The strategy
of ABC Asset management company is a an all year round momentum approach that involves
the historical value of the company. With a team of experts and a 52 week momentum
approach, our team uses a two value screen that also uses market to book ratio and the
dividend yield ratio to create a momentum and value focused strategy. It creates a value twist
in the stock that the investor is interested in. it creates two levels or stages that helps to
scrutinize the selection process of any given security (Fisher, Shah, & Titman, 2015)

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Due to empirical evidence obtained by our team at ABC asset management, there is a ranking
that is done within the 52 week time or within the year. It creates a good support for a
successful strategy in momentum. Hwang and Georges in their submissions on stock states
that this will only deliver positive results due to the ability of the team to predict the
behaviour of a stock due to extreme returns in the past. It also shows the difference between
the profitability and the stock risk and how to invest to increase the return within a specified
time. In historical data analysis, they showed that the strategy comparison will result in a
higher return that is twice as large in approximation. It also shows that the optimal
performance will come from the medium periods of the year that is the period between the
third and the twelfth month of the year. We at ABC Asset management believe that from a
perspective of time horizon, the best screen will be used for positive annual return.
For selection of a security, utilization of market to book ratio will lead to a positive
investment approach which provides the best and clearest way of future returns predictions.
This was the first value screen as predicted and used by ABC Asset management. The second
value screen was dividend yield that is used in the selection of equities allowing a detailed
plan in value assessment.The market to book ratio is an effective tool that does not only use
historical information of a stock but also the predicted asset value that is being assessed
(Huang & George,2004)
ABC asset management endeavours to have a strategy in investment that will bring both
momentum and high value for the investors.Security rankings have been created from the
dividend yield ratio and the market to book ration to give the 52 week high value for the
investors. Restructuring of a portfolio will create a value based system in the stock analysis
strategy. For optimal future performance, the portfolio is rebalanced in an annual basis for
momentum and value based strategy. This security optimum high week will create a
momentum that is 50 precent and also a 50 precent value investing arrangements that will

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guide in allocating the best 20 domestic equities. The strategy of ABC Asset management
company is a an all year round momentum approach that involves the historical value of the
company (Fisher, Shah, & Titman, 2015).Our investment philosophy helps focus
specifically on the value created when a stock is bought by an investor and the risk that the
stock poses to the investors return (Fisher, Shah, & Titman, 2015). Market to book ratio is
quite an appropriate tool in setting the investing philosophy by our asset management
company. Dividend yield is also an appropriate tool in determining which stock to focus in.
The higher the dividend yield the better the chances of investing in the company. We at ABC
Asset management believe that from a perspective of time horizon, the best screen will be
used for positive annual return.At ABC Asset management, identifying the undervalued and
overvalued assets or stocks by our team help to make a decision that will be used by the
investors in producing market returns that are above the buying price of the investor (Huang
& George,2004).
References

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Athanassakos, G. (2012). Value Investing Vs. Modern Portfolio Theory. Journal of Business
&Financial Affairs.
Fisher , S. T. (2015). Combining Value and Momentum. Journal of Investment Management,
Forthcoming.
Fisher, G. S., Shah, R., & Titman, S. (2015). Combining Value and Momentum. Journal of
Investing Management.
George, T. J., & Huang, C. Y. (2004). The 52-Week High and Momentum Investing. Journal
of Finance.
Jegadeesh, N., & Titman, S. (1993). Returns to Buying Winners and Selling
Losers:Implication for Stock Market Efficiency. Journal of Finance, 65-91.
Keppler, M. A. (1991). The Importance of Dividend Yields in Country Selection. Journal of
Portfolio Management.
Sharpe, W. F. (1992). Asset Allocation: Management style and Performance Measurement.
Journal of Portfolio Management, 7-19.

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