Our Approach

LACM seeks to bridge the gap between forward-looking fundamental equity management and backward-looking quantitative approaches.

LACM was founded to address the need for a forward-looking systematic approach to equity management, that allows for true breadth of coverage, while seeking to avoid historical biases that can dictate traditional quantitative approaches. With an investment philosophy underpinned by Investor Preference Theory®, and an implementation process driven by a proprietary, dynamic model, LACM constructs portfolios that are designed to adapt and evolve to today's economic environment. 

LACM’s investment philosophy is underpinned by its proprietary concept of Investor Preference Theory®

Investor preferences and risk tolerances change as the market evolves, and long-term historic factor behavior is not always an accurate indication of future performance and returns.

This innovative and dynamic concept forms the DNA of the Firm's investment process, guiding the research team in its search for alpha. Los Angeles Capital's Dynamic Alpha Stock Selection Model® seeks to avoid historical biases in favor of capturing and incorporating the views of today's equity investors, resulting in portfolios that are designed to adapt to the current economic environment.

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The Forward Attribution® model estimates forward-looking factor returns in the current market environment based on today’s prices and tomorrow’s expectations for earnings.

Forward Attribution® describes an innovative approach developed by the Research Team at Los Angeles Capital Management in 2014 to estimate a firm’s equity cost of capital. The technique combines the strengths of two proven valuation methods widely employed by practitioners over the past three decades: dividend discount models and multiple factor models. By regressing a company’s exposures to valuation, earnings, financial, and market factors against its current dividend discount return (DDR)*, the model is able to estimate the forward-looking price of risk for key equity risk factors. Rather than explaining yesterday’s factor returns, Forward Attribution® provides insights as to how factors are priced in the current market environment.

*DDR: Utilizing a three-stage dividend discount model, DDRs reflect the discount rate which equates projected dividends with today’s market price. To minimize errors associated with outliers, discount rates are factor adjusted through the Firm’s Forward Attribution® model which solves for the long-term price of risk of various factors. These prices are combined with an issuer’s exposure to the relevant factors to compute enhanced discount rates

Investment Process

Los Angeles Capital’s Dynamic Alpha Stock Selection Model®

  1. Factor Research

    Identify fundamental, sector, region, and country factors.

  2. Model Views

    Proprietary attribution technology identifies and isolates recent factor prices. Forecast factor returns based on their level and stability.

  3. Stock Alphas

    Systematically develop individual stock "alphas" (expected excess return) reflecting most recent market information.

Portfolio Management and Trading

  1. Construct Portfolio

    Optimize portfolio to maximize return subject to client guidelines, incorporating risks, uncertainty, and cost. Rebalancing incrementally shifts positioning towards optimal portfolios resulting in repeatable buy/sell discipline.

  2. Execute Trades

    Trading process seeks to manage and monitor transaction costs.