With clean data in hand, we now zoom in on the core building blocks-factor parameters.

Factor investing is like a puzzle-without the right parameters, the picture remains incomplete. Various parameters, such as Return on Capital Employed (ROCE), Return on Equity (ROE), and Free Cash Flow (FCF), among others, act as lenses through which we evaluate potential factors. Each parameter undergoes a rigorous development process, using customised parameter definitions, followed by a hygiene check to guarantee accuracy.

Once verified, the parameter is added to our Parameter Library, ready to be integrated for future analyses.

It's time to separate signal from noise-by subjecting our parameters to rigorous stress tests, we identify the most robust and reliable ones. This step filters out the weak, ensuring only the strongest parameters make the cut. Through comprehensive backtesting across various conditions, we gain valuable insights into their real-world performance.

The structured robustness is carried out by ranking a stock universe based on the chosen parameter, dividing it into different equally sized slices (e.g., terciles, quartiles, quintiles), and analyzing the performance of these slices over various timeframes. Ensuring that an equal number of stocks are distributed across slices is imperative.

The rationale behind this approach is simple: if a parameter effectively contributes to performance, the highest-ranked group should generate better returns than the group below it, which in turn should outperform the next one, and so forth. Additionally, volatility should increase as one moves towards the lower-ranked slices.

With battle-tested parameters in place, we move to the next frontier—turning insights into unique portfolio strategies. Our research team customises these strategies by defining the universe of stocks, portfolio size, selection criteria, weighting methodology, and the rebalancing frequency and period. This flexibility ensures that portfolios align with the investment objectives.

Once all these elements are defined, the final portfolio is constructed. Thousands of such portfolio strategies are backtested by the Research Team using the proprietary NJ Smart Beta Research Platform.

A portfolio without analysis is like a ship without a compass. It is critical to dissect a portfolio’s performance to ensure it stays on course. We leverage the NJ Smart Beta Research Platform to do so. This process encompasses multiple key aspects such as performance analysis, attribution analysis, churn analysis, etc.

The final stretch-our strategy has been refined, tested, and optimized. Now, it's time to bring it to life. Here our investment committee reviews and evaluates the research output. Only strategies that pass rigorous audit checks and demonstrate a strong potential for risk-adjusted returns are approved for implementation. These strategies are then seamlessly integrated into both new and existing portfolios.

The investment committee does a thorough liquidity analysis of the strategy before implementation to ensure efficient deployment of funds as per the strategy with minimal impact costs and slippages.