'Performance Upgrade & Low PER' Hedge Strategy... Promising Sectors for Stock Price Rebound

[Asia Economy Reporter Lee Seon-ae] Investment advice has emerged suggesting the establishment of hedge-based long-short and long-KOSPI strategies as promising quant strategies. It is judged that by building hedge positions based on factors such as earnings upgrades and low price-to-earnings ratio (PER) factors, which show the highest performance, one can achieve market volatility-independent performance (alpha).

Hana Financial Investment announced on the 11th that the impact of safety preference has recently appeared stronger and more frequently. However, it was judged that there is a law of diminishing marginal returns in terms of sentiment.

Researcher Lee Kyung-soo of Hana Financial Investment said, “Compared to before, stronger safety preference must appear for the negative impact on the financial market to increase proportionally,” adding, “Since there were two safety preference signals within the top 1% of safety preference in the past week, sentiment is expected to be temporarily subdued.” However, he noted that it is necessary to check signals according to daily indicators again for trend flow.

Despite the negative investment sentiment flow, corporate profits are not bad. Recently, annual profits for this year in sectors such as airlines, energy (refining), automobiles, aerospace defense, banking, and semiconductors have been upgraded, leading to an overall earnings upgrade. In particular, the sectors showing strong short-term impact are the automobile and aerospace defense sectors. On the other hand, profits in machinery, display, securities, hotel leisure, media, textile and apparel, chemicals, construction, life insurance, technology hardware, and shipping are declining.

Researcher Lee said, “If we pick a promising quant strategy currently, it is undoubtedly the hedge-based long-short and long-KOSPI strategy,” adding, “In fact, sector-based rotation strategies do not yield higher returns than stock-based ones. This is inevitably because investments in sector indices are mainly large-cap stocks and the sample size is small, so alpha from selection is lower compared to stock factor models.” He continued, “However, using ETFs makes investment easier compared to stock factor models and the maximum possible loss amount is small (no risk of delisting, etc.), which is an advantage in terms of risk.”

Based on 43 sectors classified by the Global Industry Classification Standard (GICS), when the top and bottom 8 sectors were rebalanced monthly on a long-short basis, the performance from 2017 to the present showed long-short +60.5% and long-KOSPI +25.4%. The multi-factor combination currently showing the highest performance is earnings 1-month upgrade, 3-month upgrade, and 3-month excessive price decline, which recorded +84.6% and +29.1% performance respectively during the same period.

Researcher Lee emphasized, “Currently, the top sector groups with this factor combination are software (Duzon Bizon, Kakao Pay, etc.), healthcare equipment, media (NAVER, Kakao, etc.), airlines, pharmaceuticals, semiconductors, textile and apparel, hotel leisure, and chemicals, in that order.”

This content was produced with the assistance of AI translation services.