Performance Tests of Volume, Insight, and ESG Activity Signals - - PowerPoint PPT Presentation

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Performance Tests of Volume, Insight, and ESG Activity Signals - - PowerPoint PPT Presentation

Jan 04, 2023 165 likes •494 views

Performance Tests of Volume, Insight, and ESG Activity Signals Global Backtest Results for Truvalue Data, SASB Codified Standard, 2008-2019. OCT 2019 Agenda Intro to TVL Scores Backtest Summary Performance by Region Portfolio

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Performance Tests of Volume, Insight, and ESG Activity Signals

Global Backtest Results for Truvalue Data, SASB Codified Standard, 2008-2019.

OCT 2019

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Agenda

  • Intro to TVL Scores
  • Backtest Summary
  • Performance by Region
  • Portfolio Analytics
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Intro to TVL Scores

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It’s not what companies say, it’s what they do

Company Disclosed Information Truvalue Labs

News, NGOs, Watchdogs, Social Media, Trade Journals, Independent Reports

To truly evaluate a company and eliminate ESG “blind spots” requires a comprehensive approach.

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Scores on 26 Material SASB categories that impact company value

UNIVERSE OF 26 SUSTAINABILITY ISSUES ACROSS 5 AREAS

Product Design & Lifecycle Management Business Model Resilience Supply Chain Management Materials Sourcing & Efficiency Physical Impacts of Climate Change Human Rights & Community Relations Customer Privacy Data Security Access & Affordability Product Quality & Safety Customer Welfare Selling Practices & Product Labeling GHG Emissions Air Quality Energy Management Water & Wastewater Management Waste & Hazardous Materials Management Ecological Impacts Business Ethics Competitive Behavior Management of the Legal & Regulatory Environment Critical Incident Risk Management Accident and Safety Management Employee Engagement, Diversity & Inclusion Employee Health & Safety Labor Practices

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Truvalue Labs creates quantitative signals based on ESG information from unstructured text

  • Local, National, and

International News

  • NGO Sources, Watchdogs
  • Trade Journals, Industry

Specific Publications, Twitter ESG Articles

  • Entity Detection
  • Industry Specific Signal

Detection

  • Signal Sentiment Scoring
  • Event Detection
  • Spotlight Events
  • Materiality
  • Company Scorecards

and Trends

  • Portfolio Monitoring
  • Investment Opportunities
  • Alpha
  • Truvalue Platform
  • Truvalue Data
  • Truvalue Index
  • Truvalue Cloud

100,000+

Multi-language sources

1 million+

Data points processed monthly

300,000+

Signals generated monthly

4 x 26

4 key scores and 26 ESG metrics

12 years

Of history on 16,000+ monitored companies

AGGREGATE EXTRACT ANALYZE GENERATE DELIVER

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Truvalue Labs produces four main scores

PULSE SCORE (0-100) Captures day-to-day variation, responds to news as it happens INSIGHT SCORE (0-100) Applies EWMA to Pulse Score, provides rating equivalents for longer-term investors TTM VOLUME SCORE # of articles tagged to SASB categories in past 12 months, measure of information flow MOMENTUM SCORE Slope of Insight Score over TTM Identifies companies with improving or deteriorating ESG 2 Years Trailing 12 Months

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Now with SASB Codified Edition, Additional Languages, New Signals

SASB UPDATED Updated SASB framework to align with codified standards 11 NEW LANGUAGES German, Japanese, French, Italian, Spanish, Portuguese, Dutch, Danish, Finnish, Norwegian, Swedish NEW ESG SIGNALS Pipeline 2 performs more fine-grained sentiment analysis 16,000+ COMPANIES Expanded coverage universe now covering 29 different ETFs around the world

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Backtest Summary

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Insight scores sort global stocks reasonably well on a standalone basis

1.8 1.32 1.61 0.71 0.9 1 2 3 Insight 5-Bucket

Annualized Active Returns

Bucket 1 Bucket 2 Bucket 3 Bucket 4 Bucket 5

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Volume ranks stocks well within each tier of market cap, and the impact of volume is negatively correlated to size

0.05 3.18 5.48

  • 0.11

2.05 3.45

  • 0.99

1.01 2.57

  • 1.77

0.6 2.28

  • 1.86
  • 0.03

2.67

  • 2
  • 1.5
  • 1
  • 0.5

0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 Largest Third of Market Cap Middle Third of Market Cap Smallest Third of Market Cap Annualized Active Returns

Quintiles of Volume within Market Cap Groups

1 2 3 4 5

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We construct an Activity Ratio by taking TTM ESG Data Volume and dividing by TTM $ Trading Volume and then rank within countries

Activity Ratio = TTM Data Volume / TTM $ Trading Volume Activity Rank = Rank of Activity Ratio within each country to normalize for differences in trading activity across countries Using $ trading volume because it’s a good proxy for typical attention a company receives Not using $ Market Cap directly to avoid building in a common size factor and introducing valuation tilts

3.04 2.58 1.35 0.49

  • 1.07
  • 1.5
  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Activity Rank

Annualized Active Returns

Bucket 1 Bucket 2 Bucket 3 Bucket 4 Bucket 5

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Combining Insight with Activity yields a stronger signal that incorporates both ESG polarity and investor attention to ESG topics

1.8 3.04 3.51 1.32 2.58 1.89 1.61 1.35 0.94 0.71 0.49 0.68 0.9

  • 1.07
  • 0.58
  • 2
  • 1

1 2 3 4 Insight Rank Activity Rank ESG Activity Signal (Insight Rank + Activity Rank)

Annualized Active Returns %

Bucket 1 Bucket 2 Bucket 3 Bucket 4 Bucket 5

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ESG Activity Signal is based on adding (or averaging) Insight rank + Activity rank

+ 2.57% + 0.95% 0% – 0.26% – 1.52%

Insight Activity

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Performance by Region

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Performance by global geographic regions

4.09% 4.39% 3.23% 3.18% 4.69% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% Global North America Developed Europe Develeoped Asia Emerging Markets

Quintile Spread for ESG Activity Signal by Region

Quintile Spread for ESG Activity Signal by Region

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Global backtest for ESG Insight + Activity Signal

50 100 150 200 250 300 350 1/02/2008 11/02/2009 9/01/2011 7/01/2013 5/01/2015 3/01/2017 1/02/2019 Top Quintile Bottom Quintile Benchmark

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North America

50 100 150 200 250 300 350 400 1/02/2008 11/02/2009 9/01/2011 7/01/2013 5/01/2015 3/01/2017 1/02/2019 Top Quintile Bottom Quintile Benchmark

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Developed Europe

50 100 150 200 250 1/02/2008 11/02/2009 9/01/2011 7/01/2013 5/01/2015 3/01/2017 1/02/2019 Bottom Quintile Benchmark Top Quintile

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Developed Asia

50 100 150 200 250 300 1/02/2008 11/02/2009 9/01/2011 7/01/2013 5/01/2015 3/01/2017 1/02/2019 Top Quintile Bottom Quintile Benchmark

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Emerging Markets

50 100 150 200 250 300 350 1/02/2008 11/02/2009 9/01/2011 7/01/2013 5/01/2015 3/01/2017 1/02/2019 Top Quintile Bottom Quintile Benchmark

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Portfolio Analytics

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Factor exposures over time: equal weighted

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Factor exposures over time: cap weighted

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Equal weighted vs. market cap weighted

3.51 2.26 1.89 0.5 0.94

  • 0.02

0.68

  • 0.08
  • 0.58
  • 0.25
  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Insight + Activity Equal-Weighted Insight + Activity Cap-Weighted

Annualized Active Returns

1 2 3 4 5

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Sector exposures over time: equal weighted

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Sector exposures over time: cap weighted

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Global sector-neutral performance is similar (and slightly better than country neutral in some regions)

3.51 3.38 1.89 1.51 0.94 0.85 0.68 1.11

  • 0.58
  • 0.45
  • 2
  • 1.5
  • 1
  • 0.5

0.5 1 1.5 2 2.5 3 3.5 4 Insight + Activity Country Neutral Insight + Activity Sector Neutral

Annualized Active Returns

1 2 3 4 5

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ESG Activity Factor is additive to Smart Beta strategies

3.51 1.71 3.2 1.89 2.39 2.32 0.94 1.79 0.68 0.68 1.01 1.75

  • 0.58
  • 1.3
  • 1.7
  • 2
  • 1.5
  • 1
  • 0.5

0.5 1 1.5 2 2.5 3 3.5 4 Insight + Activity Country Neutral 5-Factor Smart Beta CN Insight + Activity + Smart Beta CN

Annualized Active Returns

1 2 3 4 5

Five-factor Smart Beta includes size, value, price momentum, quality, and minimum volatility.

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Quarterly rebalancing also works well

3.51 3.76 1.89 2.38 0.94 1.27 0.68 0.66

  • 0.58
  • 0.28
  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Monthly Quarterly

Annualized Active Returns

Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5

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Global risk-return profile

I*A Country Neutral Quintile Universe Return Standard Deviation Return Return / StdDev Benchmark 7.75 21.17 0.37 1 9.40 21.89 0.43 2 9.19 21.39 0.43 3 7.40 20.80 0.36 4 7.29 21.72 0.34 5 5.50 20.79 0.26

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Thank you

sales@truvaluelabs.com