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Best ADR Stocks: Alibaba


  • The Power Factors System is a quantitative stock-picking system that has produced outstanding returns in the long term.
  • Applying the system to a universe of ADRs generates an impressive annual return of over 18% per year since 1999.
  • Among the ADRs currently selected by the system, Alibaba looks like a particularly interesting candidate to consider.

There is no magic and infallible formula to picking winning stocks, and even the best quantitative systems can go through periods of underperformance from time to time. That being said, The Power Factor System works quite well across different universes over long periods of time.

The system basically ranks companies in a particular universe based on three effective and time-proven return drivers: financial quality, stock valuation, and business momentum. We are basically looking for companies generating sound profitability, stocks trading at reasonable valuation levels, and businesses that are doing better than expected.

The concept is quite simple and easy to understand, but that doesn't make it any less effective. On the contrary, backtested data shows that applying the Power Factors System to different sectors and markets tends to consistently deliver above-average returns.

The following backest applies the Power Factors System to a broad universe of over 1,000 ADRs listed in U.S. exchanges. The portfolio picks the best 50 names according to the ranking system, and then it builds an equally weighted and monthly rebalanced portfolio with those stocks.

The Power Factors portfolio is assumed to have an annual expense of 1% to account for trading expenses and slippage, and the benchmark is the Vanguard Total Stock Market ETF (VTI).

Backtested performance is nothing short of extraordinary. The Power Factors system produced an average annual return of 18.49% since January of 1999, while the Vanguard Total Stock Market ETF gained a much smaller 6.67%. Alpha for the quantitative system is an impressive 12.14%, and the Sharpe Ratio stands at 0.84 versus 0.37 for the benchmark.

Putting the numbers in perspective, this means that a $100,000 investment in the Vanguard Total Market ETF in January 1999 would currently be worth around $336,900. In stark contrast, the same amount of capital allocated to the portfolio recommended by the

This article was written by

Andres Cardenal, CFA profile picture
Proven strategies for superior returns and active risk management
Andrés Cardenal, CFA. Economist, financial analyst, columnist. Naturally flavored.

Analyst’s Disclosure: I am/we are long BABA, AMZN, MELI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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