Equity Markets, Valuation, and Analysis

CHAPTER 15Equity Investing Strategies

Nicholas Biasi

Independent Financial Consultant

Andrew C. Spieler

Robert F. Dall Distinguished Professor of Business, Frank G. Zarb School of Business, Hofstra University

Raisa Varejao

Structured Finance Associate

INTRODUCTION

Investors must decide on their broad asset class exposures and weightings. They use a strategy called strategic asset allocation to set target allocations for various asset classes and rebalance periodically. Investors should have diversified portfolios that include some weighting to equities. The specific weighting depends on several factors, including the investor's time horizon, risk tolerance, and income needs. Investors must also decide on the tactical asset allocation within the equity asset class.

Tactical asset allocation is a decision to deliberately deviate from the strategic asset allocation, which is constructed from the risk and return objectives of an investment policy statement (IPS) to add value to the portfolio. An important part of this decision is based on choosing the appropriate investing style(s). This chapter provides a discussion of the prominent and emerging trends in equity investing strategies. Furthermore, security selection is a more deliberate strategy than tactical asset allocation. This process involves putting more weight on securities that investors believe are likely to outperform a specified benchmark. The benchmark may be the sector benchmark for that specific security, or it could ...