Through the utilization of a relative value approach, alpha is achieved with the following components:
Capitalization: All (Large, Mid, Small)
Styles: All (Growth, Core, Value)
Factors: PE/G, Return on Equity, Earnings Yield
Abstract: The majority of research on active and passive investment approaches suggests individual investors should choose a passive index investment vehicle over an active management investment vehicle. This paper proposes utilizing fundamental stock data to develop an active fundamental approach to investing in US stocks to determine if utilizing the data in a systematic approach enables us to outperform a corresponding traditional index approach. The approach is backtested and yields a 40% cumulative growth advantage over a traditional index approach.
To see more details including testing, open the following link to read the paper: