Unlike statistical models with a fixed set of rules for picking stocks, the Haugen model with its huge array of more than 60 factors is able to replicate the kind of “feel for the markets” that experienced money managers demonstrate.

What makes it so powerful? It does what no human can – it analyzes the impact of 60+ factors on the expected returns of more than 4,000 stocks simultaneously. This enables it to forecast future performance on the basis of constantly changing conditions.

Flexibility is therefore one of the key benefits of our expected return factor model. It can:

  • Be used to improve portfolio performance by accurately predicting near term winners and losers within a group of value or growth stocks
  • Enhance the payoffs to long, short and market neutral strategies
  • Respond effectively to changing market conditions

The model accurately projects not only size changes in the payoff to a given factor, but also sign changes. For example, payoffs to stocks paying relatively high dividends might be positive one month, but negative the next. As a result, you can predict with a high degree of accuracy a forthcoming change in the payoff to a given stock. This enables you to more accurately time portfolio adjustments, i.e., to buy at bargain prices and sell at the top of a slide.

Our model has also been shown repeatedly to respond to current market conditions. In the long run, the model favors portfolios of stocks that are in the aggregate relatively cheap, profitable, liquid, and minimally volatile. However, the Haugen model will, over shorter periods, shift from favoring value, to growth, to growth at a reasonable price.

Our model is even flexible enough to predict a rise in the price of a particular energy stock, while "judging" that the sector as a whole will go down. In the hands of a savvy investment professional, the Haugen model is clearly a winning tool.