We believe that systematic investing – which we define as a process combining elements of quantitative and qualitative investing – is a superior approach. Systematic investing removes much of the emotion from the decision-making process, a strongpoint of quantitative approaches. But this approach also allows for some, albeit limited, human judgement. The reason is that, in our view, it is difficult for models to capture all relevant information in real time.
At the foundation of Affinity’s systematic process is a proprietary, multi-factor model which ranks stocks, yielding an Affinity Score. This serves as the basis for our highly disciplined investment approach and drives the stock selection process.
Philosophy & Process
Affinity believes that while the equity markets are highly efficient, pockets of inefficiency and security mispricing exist where a systematic, active strategy can add value. Market inefficiencies exist based on the behavioral tendencies of investors, and Affinity seeks to exploit these inefficiencies by identifying and investing in attractively valued businesses whose underlying fundamentals are improving. For over 25 years we have been executing our philosophy in a consistent, disciplined and rigorous manner.
Affinity utilizes a quantitative model that seeks to objectively identify stocks with the greatest expected outperformance. The model favors attractively valued stocks with improving expectations and positive price momentum. The model ranks a universe of stocks, assigning each security an “Affinity Score”. The top quartile of stocks, as determined by the Affinity Score, represents buy candidates. We employ a qualitative overlay to confirm the attractiveness of the companies and to identify possible negative situations that are not reflected in the statistics.
Portfolios are constructed by maintaining the desired exposures to undervalued securities with positive earnings and price momentum, but maintains tight control relative to the benchmark in key areas such as sector exposure, capitalization distribution, and beta. The resulting portfolio is sector neutral. Our disciplined approach adds value by creating diversified portfolios that allow for low turnover and the flexibility to perform well in different market environments.