How did BAS’s proprietary stock ratings compare to the S&P Composite 1500 in 2023?
Spoiler alert: Very well, especially on the buy side.
Read on to see our ratings system explained below, an analysis of our rating effectiveness in 2023, and where our combo scores outperformed the S&P 1500.
The Burney Advisor Services (BAS) Combo Rating dynamically integrates three underlying ratings from the Fundamental Model, the Recovery Model, and the Earnings Surprise Model into a comprehensive view. This approach offers advisors a broad and in-depth coverage of the U.S. stocks.
The Fundamental Model is sector-based and identifies company-specific characteristics associated with past excess return. It proves most effective during both normal and distressed markets.
The Recovery Model is trained on periods immediately following major market selloffs and is most effective during phases of recovery.
The Earnings Surprise Model leverages big data algorithms and machine learning to forecast how likely a company is to surprise in revenue and earnings based on changes in the data that predict a change in the underlying customer demand. This forward-looking and near real-time approach is most effective when market expectations underestimate revenue/EPS and when investors react positively to an earnings beat.
Most active managers and equity hedge funds underperformed the cap-weighted market indices last year, reflecting a narrow, imbalanced rally dominated by a few mega-caps. This is evident in the year's returns:
- The S&P 1500 Index: 25.5%
- The S&P 1500 Equal Weight Index: 14.7%.
- The "Magnificat Seven": 71%
- The remaining 493 in the S&P 500: 6%.
We measure our rating effectiveness over the S&P 1500 universe. The baskets of buys and sells are rebalanced monthly and the returns are equal-weighted.
In 2023, the Combo Buys significantly outperformed the S&P 1500 EW Index, with a margin of 11% (25.7% vs. 14.7%), while the Combo Sells performed as expected, underperforming the S&P 1500 EW Index by 5.6% (9.1% vs. 14.7%).
What's more, the Combo Buys didn't just outperform the S&P 1500 Equal Weight Index for the entire year - it built up its outperformance every step of the way.
All our underlying ratings also individually beat the S&P 1500 Equal Weight Index on the buy side. On the sell side, however, only the Recovery Rating achieved a lower return than the index.
Beating the cap-weight index on an equal-weight basis in a year with extremely narrow breadth is no trivial task. We take pride in our team's hard work over the past year.
In 2024, the year of rate cuts, we see economic challenges, shifts and dislocations for companies. We expect the performance gap between the magnificent 7 and the remaining 493 to close as we enter a stock picker's market. Our commitment remains steadfast in providing advisors with an all-weather combo signal and supporting them to enhance their investment outcomes.