The primeSelector Selection Criteria

Equity investors usually advocate a particular style e.g. value, growth, small caps etc. when screening for stocks. primeSelector combines different styles and offers a more robust solution in changing market regimes. Subscribers of primeSelector can chose between a naïve / standard equal weighting of the selected factors or an advanced self-adaptive algorithm searching for the optimal factor combination. The main prime factors are the following:

"primeSelector is really intuitive and hence easy to use, especially because of the PRIME factors."

P: PIOTROSKI Scores

The Piotroski score is a discrete score between 0 to 9 which reflects 9 criteria used to determine the strength of an organization’s financial condition. The Piotroski score is always used as a filter to eliminate the wheat from the chaff. A key to successful equity investments is to avoid big mistakes and the Piotroski score helps achieve exactly that.

R: Risk

As our risk factor we measure the realized volatility of every stock in our universe over the past 12 months. Stocks with a low realized volatility usually bear less risk and maintain their relative stability during market downturns. While stocks exhibiting low volatility usually outperform their riskier peers over the long term, the true benefit is mostly felt during periods of market stress.

I: Intrinsic Value

The intrinsic value of a stock is calculated based on a conservative adaptation of the Benjamin Graham formula. primeSelector does not rely on analyst forecasts for future growth to calculate the intrinsic value of a company, but derives its own adjusted growth expectations from historic, company-specific and market-implied trends.

M: Momentum

Trends have always played an important role amongst investors. The combination of trend measures with valuation measures helps avoid the so-called value trap. We use a standard 12 months minus 1 month volatility adjusted momentum score.

E: Estimates

Analysts can influence investor sentiment. Company up- and downgrades by analysts have shown to have an impact on stock prices long after the actual ratings change. We measure the rate at which consensus analyst ratings change over the last 3 months and rank the stocks accordingly.