In Search of Certain Earnings: Applying the ACE Portfolio Concept to SectorsFinancial Services Forum Publications
Document TypeOccasional Paper
AbstractSector composites that have highly stable earnings streams allow the portfolio manager or analyst to derive “earnings certain” sector risk premiums. ACE (Approximately Certain Earnings) Sectors represent such baskets. Since sector pricing is influenced by earnings variability, obtaining risk premiums from standard sectors is contaminated. With knowledge of an EPS Stability measure, a composite engine, and the proprietary G-Model (or like DCF framework), we can discover companies within each sector that exhibit highly certain earnings. In practice, ACE Sectors can be used to derive current/historical “earnings certain” sector risk premiums, enhance sector rotation strategies, obtain sector implied growth rates, make risk adjustments for present value modeling, and construct improved valuation benchmarks.
Community Engaged/ServingNo, this is not community-engaged.
Citation InformationJames L. Grant and Chris Rowberry. "In Search of Certain Earnings: Applying the ACE Portfolio Concept to Sectors" (2007)
Available at: http://works.bepress.com/james_grant/3/