Defining an Investment Universe

Image

When building an investment strategy, the first question one needs to ask is what are the set of stocks that can be included in the portfolio:

  • Domestic, international or global?
  • LargeCap, SmallCap, AllCap?
  • Focus on specific sectors or industries?
  • Etc

The Finsera platform provides a friendly and intuitive interface (no coding required!) for defining and building such a universe. There are two main options for building such a universe.

Defining a universe through a set of rules

In this option, the user is provided with a set of drop-down menus (country, marketCap, industry etc) to define the desired universe.

Once parameters are defined, the universe is built historically, and an analysis tab provides a rich and flexible set of widgets that provide a detailed view of the universe over time.

One can easily go back and forth between the definition page and the analysis page, modifying universe parameters and monitoring their impact on the resulting universe.

Building a US Tech Universe

As an example, we will show how to define and build a US Tech universe. To do that, we open a menu that asks us to select a set of parameters to define the universe:

  • Quotation Country: US
  • MarketCap>=$100m
  • Daily Median Trading Volume: >=$1m
  • Sector: Technology

And a few more

Universe definition

Once defined, we click the generate button and the universe will be historically generated per defined specification.

To view the result, we open the analysis tab which provides a menu of configurable widgets to evaluate the resulting universe

For example one can see universe coverage over time

Universe definition

As the chart shows,after a long period of reasonably stable coverage, the number of publicly-traded tech names has increased significantly with the market run up following the initial Covid lockdown.

Drilling down to the sub-sector level of industry classification (based on Factset’s RBICS schema) we see that much of the growth over time has been in software and internet names, while the number of publicly traded hardware companies has actually gone down modestly over the period.

Universe definition

Drilling down to the sub-sector level of industry classification (based on Factset’s RBICS schema) we see that much of the growth over time has been in software and internet names, while the number of publicly traded hardware companies has actually gone down modestly over the period.