Systematic Alpha

Investment Philosophy

Validea Capital was founded based on the principle that the best way to outperform the market is to learn from what has worked in the past. Our stock selection models are based on the investment factors that have been proven to impact stock performance over time. We believe that following factor-based strategies, and implementing them in a disciplined, unemotional and systematic manner can lead to long term market outperformance.

The Systematic Alpha Strategy

Our Systematic Alpha strategy was developed in conjunction with Andrew Cohen, who is a distinguished lecturer at Old Dominion University, and Professor Feng Dong of Siena University. The strategy is the culmination of their research into the factors that drive stock performance over time.

The strategy of this portfolio is to provide long-term capital appreciation through a concentrated portfolio of all-cap value stocks selected using a systematic investment model. We seek to capitalize on the value premium by buying stocks that display the most attractive rankings based on a variety of cash flow, valuation, sentiment, and safety criteria. Our goal is to select the top ranked stocks to achieve maximum excess return while minimizing overall risk by using stock and industry level diversification. Briefly speaking, we initially set up criteria to eliminate very risky and low ranked stocks. Second, we rank all remaining stocks within each GICS industry group based on a combination of variables, which are filtered from more than 200 different available factors, to measure the relative value of the stocks. Last, we pick the top one from each GICS industry to diversify the idiosyncratic risk. The end result is a portfolio that seeks to capitalize on factor premiums over time while also focusing on managing risk.