A Ranking Tool for US Large Cap Equities

Introduction
Features
Differences from Other Kailash products
Performance
Conclusions
Exhibits
Appendix: User’s Manual for the Kailash Interactive Rankings Tool

Introduction

We are pleased to introduce the new Kailash Capital Research, LLC (“Kailash”) Large Cap Rankings Tool. For new clients who are unfamiliar with the Kailash approach to assessing stocks, it may be worth a high-level explanation of the process and approach Kailash uses to rank the stocks within the R1000 universe. After verifying and validating the underlying data, the Kailash Large Cap Rankings Tool assesses and compares each stock using the factors known for that stock and uses sophisticated algorithms to compare the qualities of a company across multiple dimensions against the rest of the companies in the R1000 index to ultimately arrive at a relative ranking of aggregate attractiveness for each stock in the index. The most attractive stocks are at the top of the rankings and the least attractive stocks are at the bottom. While details for many of the fundamental factors considered in the screening process are shown, users should be mindful that much of the process’s strength stems from the dynamic interaction of these fundamental variables.

Get our White Papers direct to your inbox: SUBSCRIBE

Overall, the Kailash products like quality. The objective in designing the approach was to find undiscovered value by ferreting out atypically high-quality businesses for their level of relative valuation. There’s an old saying in the industry that “a growth investor studies the income statement, glances at the balance sheet and forgets valuation while a value investor starts with valuation, studies the balance sheet and looks at the income statement.” The Kailash methodology works with the knowledge that there is excellence in both approaches, and the Large Cap Rankings Tool works to dynamically compare the relative attractiveness of stocks with growth or value characteristics. Depending on market conditions, at times value stocks may be over-represented in the top ranked stocks, but at other times growth stocks could be better represented. Generally speaking the models avoid popular fast growth stocks.

In an ideal world, the fundamental process would produce nothing but inexpensive, fast growing companies with vaults for balance sheets, income statements and cash flow metrics that point to conservative accounting, track records of consistently efficient cash deployment, and idiosyncratic price action that reflects an improving market opinion of the company. Unfortunately, all of these factors rarely, if ever, coalesce. Unlike traditional quantitative models which often begin and end in either value or momentum, the Kailash process works backward, assessing quality across dozens of metrics and then favoring shares whose quality may be mispriced. We believe this approach closely mirrors the process pursued by most fundamental investors who seek to arbitrage their incremental units of knowledge from their detailed study of fundamentals against the publicly recognized valuation and price.

In practical terms, the Large Cap Rankings Tool compares the relative merits of every company in the Russell 1000 Index with every other company. A great investor once said “The investor who wins is the one who turns over the most rocks.” We agree emphatically and believe the Kailash approach excels at turning over all of the “rocks” in the R1000 universe at once. Our objective is to maximize efficiency and minimize the time clients spend sifting through stocks that appear inexpensive, but are of low quality or represent overpriced growth. We believe that shopping in the “right neighborhood” or fishing in an “attractive pond” is the most effective method to optimize clients’ time, amplify their abilities as portfolio managers and increase their chances of finding stocks accretive to their shareholders’ returns.

As always, we appreciate the support given to us by each of our clients. We would be happy to answer any questions that existing or prospective new clients may have about the new Kailash Large Cap Rankings Tool or any of the other Kailash products.

Subscribe now to unlock the full content

Already a member? Click here to log in

SERVICES

As a reminder for our Financial Advisors: our models are available on a continuous basis, and most have been in production for over a decade. If you are looking for simple, concentrated, low turnover, and tax efficient model portfolios we would like to talk with you. KCR also offers a wide range of easy-to-use but sophisticated tools. Our toolkits can help identify mispriced stocks with the best and worst risk/reward characteristics, estimate a stock’s duration and warn you when a company is engaging in low-quality accounting. Over the last 12 years, KCR has built and offers time-tested and class-leading products built by experienced and proven money managers for fixed to low prices.
Kailash Capital Research, LLC ’s sister company, L2 Asset Management, runs market neutral, long/short, large-cap, and mid-cap long-only portfolios with a value and quality bias. L2 employs a highly disciplined investment process characterized by moderate concentration, low turnover, high tax efficiency, and low fees. While nobody can predict the future, we believe the recent resurgence in risk-adjusted returns seen across all products is the beginning of what may be a long period where speculation is punished, and prudence and patience rewarded.

ADDITIONAL READING

The topics discussed in this article are aimed at seasoned professionals, as such, we have included some extra reading for anyone seeking out more information related to the topics above.

Disclaimer

The information, data, analyses, and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital Research, LLC and its affiliates (collectively, “Kailash Capital Research, LLC ”) shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of Kailash Capital Research, LLC . In preparing the information, data, analyses, and opinions presented herein, Kailash Capital Research, LLC has obtained data, statistics, and information from sources it believes to be reliable. Kailash Capital Research, LLC , however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. Kailash Capital Research, LLC and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction. © 2021 Kailash Capital Research, LLC – All rights reserved.

Nothing herein shall limit or restrict the right of affiliates of Kailash Capital Research, LLC to perform investment management or advisory services for any other persons or entities. Furthermore, nothing herein shall limit or restrict affiliates of Kailash Capital Research, LLC from buying, selling or trading securities or other investments for their own accounts or for the accounts of their clients. Affiliates of Kailash Capital Research, LLC may at any time have, acquire, increase, decrease or dispose of the securities or other investments referenced in this publication. Kailash Capital Research, LLC shall have no obligation to recommend securities or investments in this publication as result of its affiliates’ investment activities for their own accounts or for the accounts of their clients.