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Research Insight - Tracking the Earnings Yield Factor

categories: Portfolio Management Analytics, Americas, EMEAI, Factor and Risk Modeling, Investing (Investment Management), Portfolio Construction and Optimization, Risk Management, Asia Pacific, Asset Owners, Hedge Funds, Equities, Research Paper, Asset Managers (Quant or Fundamental), Research Insight, general

Earnings yield - typically defined as the inverse of the price-to-earnings ratio - is viewed as a strong value signal. In this paper, we provide examples of portfolios that track the Earnings Yield factor return from the Barra US Equity Model (USE4). We examine different sets of constraints - including long-only, turnover and number of assets and leverage - to see how they affect the performance of tracking portfolios.

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