By Rupert Hargreaves. Originally published at ValueWalk.
Société Générale publishes a monthly update on the performance of several value-oriented fundamental trading strategies across both developed and emerging markets.
In this piece, I’m taking a look at Société Générale’s Joel Greenblatt’s ‘Magic Formula‘ screen.
Joel Greenblatt Screen – A quick recap
The Société Générale Greenblatt screen seeks to replicate Joel Greenblatt’s ‘Magic Formula’.
However, Société Générale’s quantitative method is not an exact replica of Greenblatt’s strategy, which Greenblatt claims would have returned an astonishing 30.8% per year over the 17 year period to 2004.
Nonetheless, the screen is based on the same principles.
Greenblatt’s formula uses a simple and systematic investing strategy based on a very understandable principle – that buying shares in cheap, good quality companies beats the market. Société Générale ranks companies by the average ranking based on return-on-capital (EBIT/(net working capital +net fixed assets) and earnings yield (EBIT to Enterprise Value). The 30 or so companies scoring most highly by this sum are then selected.
Joel Greenblatt screen — July Qualifying stocks in developed markets
For developed market equities, Société Générale’s Greenblatt screen covers the universe of FTSE World Developed and FTSE 350 stocks.
From inception during 2002, to the most recent market screen, conducted on July 03, the stocks qualifying for the Joel Greenblatt developed market screen have returned 13.5% per annum, outperforming the wider universe of FTSE World Developed and FTSE 350 stocks by 2.8%.
Emerging market Greenblatt screen returns
Performance is shown on a US$ gross total return basis and assumes monthly rebalancing. All financial companies are excluded from the Greenblatt screen and the universe.
Here are the top ten stocks that currently meet the Greenblatt screening criteria in developed markets according to the July screen. If you’re interested in the stocks that qualified for the June screen, the list was published here.
Developed markets Greenblatt screen results
Joel Greenblatt Screen emerging markets
Société Générale also applies the Greenblatt screen to FTSE World Emerging stocks. Once again, all financial companies are excluded. The portfolio is subject to a monthly rebalancing, and the screen ranks companies by the average ranking based on return-on-capital (EBIT/(net working capital +net fixed assets) and earnings yield (EBIT to Enterprise Value).
Since 2002, the emerging market Greenblatt screen has outperformed by 7.1% per annum compared to the wider universe. Drawdown figures are lower, but volatility is higher than the developed market screen.
Emerging market Greenblatt screen returns
Here is the list of emerging market stocks that met the Société Générale Greenblatt screening criteria. Once again, if you’re interested in the stocks that qualified for the screen last month, the list was published here.
Emerging market Greenblatt screen results
Sign up for ValueWalk’s free newsletter here.
