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Unpublished Paper
In Search of Certain Earnings: Applying the ACE Portfolio Concept to Sectors
Financial Services Forum Publications
  • James L. Grant, University of Massachusetts Boston
  • Chris Rowberry, Reuters StockVal
Document Type
Occasional Paper
Publication Date
Sector 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.

Working Paper #1016

Community Engaged/Serving
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Citation Information
James L. Grant and Chris Rowberry. "In Search of Certain Earnings: Applying the ACE Portfolio Concept to Sectors" (2007)
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