The Japan Enhanced Index Equity strategy aims to generate out performance over the medium to long term, using a proprietary quantitative model based on three distinct components that estimate expected alpha from individual stocks.
- Investment opportunities arise where stock prices deviate from theoretical values
- Proprietary quantitative model
- Opportunistically invests across all market caps
- 3 independent sources of expected returns
It is the combination of the three components within the proprietary "N.ALPHA" model which enables the investment team to calculate the expected alpha of individual stocks accurately. The effectiveness of N.ALPHA has been verified by long-term simulations, as well as a variety of stress-tests, which may obtain stable excess returns over the medium and long-term.
- The Risk Premium Model estimates rises in future theoretical stock prices
- The Mis-Pricing Model estimates the difference between theoretical and actual stock prices
- The Behavioural Finance Model estimates stock prices based on investor behaviour
The investment process is supported by "N.SERIES", a proprietary series of investment tools used to estimate credit risk, transaction costs, risk control and performance analysis. This series enables effective portfolio construction by responding flexibly to the investment team's needs and changing markets.
Portfolios are constructed by inputting the expected alpha of individual stocks from N.ALPHA into Nikko AM's proprietary optimisation model.