ab5 February 2024Global Research and Evidence LabQuantitative MonographsWisdom of the Crowd Into Reporting Season - February 2024Unique crowding dataWe have a proprietary crowding data set that leverages hedge fund and long only institutional holdings to effectively capture crowding on both the long and short ends of the spectrum. It can be profitable to go with the wisdom of the crowd, however there is an inherit risk that can be realised if a trade becomes overcrowded. The key is in being able to time when it is optimal to go with the crowd and when to get out.Momentum in crowding taps into the wisdom of the crowdBy considering both the level of 'crowdedness' and the change in crowding, we are able to harness crowding to our advantage by developing an alpha implementation based upon our proprietary score. We have previously written about this approach in An Australian Approach to Crowding. In this note we take this approach to develop a model to screen for potential ideas to tap into crowded long and crowded short momentum for the February reporting season. We have attempted to optimise the model for factors we consider relevant heading in to reporting season. The model considers the level of crowding, a multi-horizon view of the change in crowding, recent share price performance and analyst revisions.Current model suggestionsThe backtests begin in 2017 and show promising performance on both the long and short sides over this period. We also investigate how the models perform specifically during reporting season to check their viability for this time of year. We find that the model performs just as well during the February and August reporting seasons. In the note we provide a brief list of names as screened by the model.Figure 1: Long and short side model cumulative excess returnsSource: FactSet, UBS Quant. Note: total returns on an equal weighted portfolio. Benchmark used: ASX 300.This report has been prepared by UBS Securities Australia Ltd. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 5. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.EquitiesAustraliaQuantitativeJames CameronAnalyst james-a.cameron@ubs.com +61-2-9324 2074Paul WinterAnalyst paul-j.winter@ubs.com +61-2-9324 2080Oliver Antrobus, CFAAnalyst oliver.antrobus@ubs.com +61-3-9242 6467Luke Brown, CFAAnalyst luke.brown@ubs.com +61-2-9324 3620Ashley ShiAnalyst ashley.shi@ubs.com +61-2-9324 3862Mat CranwellAnalyst mat.cranwell@ubs.com +61-2-9324 3779Hugh DawsonAssociate Analyst hugh.dawson@ubs.com +61-2-9324 2000 Quantitative Monographs ...
