baml na growth analysis

8/9/2019 BAML NA Growth Analysis

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STONE STREET ADVISORS

Analyzing BA-ML Quantitative

EquitiesNorth American Growth

ChiBondKing [email protected]

June 2010

A quick return analysis of the top North American picks from the Bank Of America/Merrill Lynch Quantitative Equities

team to determine the relative effectiveness and robustness of their model selections.


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BackgroundAfter reading a relatively recent research piece coming out of Merrill Lynch (ML)s Global Quantitative Research group in

May 2010 titled: Bullish with a touch of sensitivityand armed with my handy statistical modeling program, I set out to

see how well their picks performed. Given my negative outlook for the US markets since December 2006, I wondered if a

quantitative model could accurately pick stocks that would generate acceptable returns without causing excessive risk.

To get started, I focused only on the Growth category and attempted to apply some models that I have run across here

for analyzing and constructing portfolios, primarily: Constant Correlation Modelling, MVE Estimation, Covariance MCD

Estimation and Kendall Estimation with the latter 3 being used in the creation ofefficient portfolios. Their initialdataset consisted of 30 global equities across a variety of sectors and countries. My dataset for the sake of simplicity

revolves around North American equities (excluding Canada) which left me with a portfolio of 13 names, diversified

across an adequate number of sectors. Their dataset from what I can tell goes back 7 years, so I attempted to match that

as close as possible by obtaining daily price series dating back to January 2004.

Growth Portfolio Symbols: TD, AAPL, CLF, CMI, DV, EL, ESRX, HST, ISRG, MET, ORCL, BTU, WDC

Constant Correlation Model

Figure 1 - Constant Correlation Model Portfolio Returns, 2004-Present


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Figure 2 - CCM Frontier Possibilities


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Kendall Estimation

Figure 3 - Kendall Estimation, Dynamic Rebalancing Long Only


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MV Estimation

Figure 4 - MV Estimation, Long/Short Constraints, Dynamic Rebalancing


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Portfolio Weightings Efficient Frontier Modelling

Figure 5 - Comparison Of Weightings For Kendall, CovMCD and MVE Portfolios


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baml na growth analysis

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