VALUE INVESTING STRATEGIES IN THE TECHNOLOGY SECTOR
Rostedt, Frans (2022-05-20)
VALUE INVESTING STRATEGIES IN THE TECHNOLOGY SECTOR
(20.05.2022)
Julkaisu on tekijänoikeussäännösten alainen. Teosta voi lukea ja tulostaa henkilökohtaista käyttöä varten. Käyttö kaupallisiin tarkoituksiin on kielletty.
avoin
Julkaisun pysyvä osoite on:
https://urn.fi/URN:NBN:fi-fe2022060844194
https://urn.fi/URN:NBN:fi-fe2022060844194
Tiivistelmä
Relevancy of traditional value investing strategies have been questioned after a long period of underperformance. The book-to-market ratio has not been performing in almost four decades in the US large cap space. Bulk of the academic value investing research is done based on book-to-market multiple, rarely wide set of multiples is studied and questions like “Do enterprise value-based multiples work better than market capitalization-based multi-ples?” or “Do forward-looking multiple perform better than past-looking multiples?” are not asked.
Growing body value investing research is suggesting that enterprise value-based multi-ples might work better than the traditional multiples like book-to-market or earnings-to-price ratios. Some studies have found out that value investing strategies perform better when the focus is on a specific sector or industry. Prior research has not explicitly focused on technology sector.
The main objective of this paper is to determine which value investing strategies per-form the best in the Nordic technology sector measured by raw and risk-adjusted returns. To gain more insight, the characteristics of the best strategies are studies as well. A portfo-lio method is applied to study the value investing strategies in the Nordic technology sector from the 31st of March 2006 to 1st of April 2021. The biggest sample contains 332 unique firms. The main performance measures are technology sector adjusted returns, Sharpe ratio, Sortino ratio, Sortino_F ratio and Fama-French three-factor alpha.
The results provide evidence that value investing strategies can be profitable also in the technology sector even though the overall Nordic technology sector performed extremely well generating 15.5% annual return. The best performing multiple was operating-adjusted EBITDA/EV measured by all raw and risk-adjusted returns. Top quintile EBITDA/EV port-folio generated 24.0% CAGR, 7.0% annual technology sector-adjusted return and 18.7% three-factor alpha. Second best multiples were CF/EV and CF/P. Traditional B/P ratio per-formed poorly. Enterprise value-based multiples outperformed market-capitalization in al-most all the cases. Forward-looking multiples outperformed corresponding past-looking multiples in almost all the cases. Some evidence was got that 12-month forward-looking earnings-to-enterprise value would the best performing multiple in the space with larger and more liquid stocks.
Growing body value investing research is suggesting that enterprise value-based multi-ples might work better than the traditional multiples like book-to-market or earnings-to-price ratios. Some studies have found out that value investing strategies perform better when the focus is on a specific sector or industry. Prior research has not explicitly focused on technology sector.
The main objective of this paper is to determine which value investing strategies per-form the best in the Nordic technology sector measured by raw and risk-adjusted returns. To gain more insight, the characteristics of the best strategies are studies as well. A portfo-lio method is applied to study the value investing strategies in the Nordic technology sector from the 31st of March 2006 to 1st of April 2021. The biggest sample contains 332 unique firms. The main performance measures are technology sector adjusted returns, Sharpe ratio, Sortino ratio, Sortino_F ratio and Fama-French three-factor alpha.
The results provide evidence that value investing strategies can be profitable also in the technology sector even though the overall Nordic technology sector performed extremely well generating 15.5% annual return. The best performing multiple was operating-adjusted EBITDA/EV measured by all raw and risk-adjusted returns. Top quintile EBITDA/EV port-folio generated 24.0% CAGR, 7.0% annual technology sector-adjusted return and 18.7% three-factor alpha. Second best multiples were CF/EV and CF/P. Traditional B/P ratio per-formed poorly. Enterprise value-based multiples outperformed market-capitalization in al-most all the cases. Forward-looking multiples outperformed corresponding past-looking multiples in almost all the cases. Some evidence was got that 12-month forward-looking earnings-to-enterprise value would the best performing multiple in the space with larger and more liquid stocks.