The Zen Earnings Leverage Trading Strategy looks for companies that have recently raised their earnings forecasts or have been upgraded by the analyst community. The idea is to bet on accelerating earnings, rather than stable earnings.
The Screening Algorithm
This factor trading strategy begins with a universe of 6,000 stocks of all sizes, industries, and geographical locations, the algorithm selects stocks with robust fundamental characteristics like revenue and earnings growth, debt coverage, growing market share. But it doesn’t stop there.
It then applies a second filter that only allows companies that have positive technical readings like price and volume momentum, positive on-balance volume, and high relative strength. We run the screening algorithm every four weeks, and it produces a list of 10-15 candidates for further consideration. We then look at each candidate and eliminate any that have made it through by virtue of bogus numbers, or  are the subject of rumors about accounting irregularities or contract cancellations.
The final list of stocks that make it into the model portfolio consists of 5-7 thoroughly vetted names. These finalists tend to be smaller than average in size, and younger than average in age. But there are also names that are blue chip companies that have temporarily fallen out of favor, and might be poised for a significant rebound.
The Performance History
The performance of the Earnings Leverage Factor Trading Strategy has been underwhelming over the last 10 years, as the chart below shows. However, on a longer time horizon, the numbers improve markedly.Â
This illustrates an important feature of this strategy. There will always be periods when it under-performs the market. It’s an inevitable fact of life, unless you were a client of Bernie Madoff, and never experienced a down year until you lost everything.
Â
Earnings Leverage Track Record
Â
$55/month
$550/year