Social Market Analytics has been creating security level sentiment metrics for six years. As we build an out-of-sample history we are able to build longer holding period indexes. I have blogged about longer term factors before, this is the most comprehensive portfolio strategy built using sentiment level data. This blog will discuss the application of sentiment to a long only 50 stock, re balanced annually, index.
SMA50 Index is a new, capitalization weighted index comprised of 50 stocks with these features:
The SMA50 index measures the aggregate performance of stocks with high levels of crowd sourced commentary and high market liquidity.
Below is the historical performance of the SMA50 Index. We will add tilting to the index based on sentiment and momentum.
The following factor tilt indexes are derived from the equity universe of the SMA50 parent index. Factor Tilt Indexes are re-balanced monthly on the first market day of the month.
SMA-MT: Momentum Tilt
– Designed to deliver the performance of an equity momentum strategy by emphasizing stocks with high risk-adjusted price momentum.
Momentum Weight for SMA-MT = Momentum Score * Market Capitalization Weight in the SMA50. Momentum weights are normalized to sum to 100%.
SMA-ST: Sentiment Tilt
– Using SMA’s S-Score and SV-Score as factors, emphasize stocks with positive levels of social media sentiment and intensity, while attenuating stocks with low sentiment levels.
Sentiment Weight for SMA-ST = Sentiment Score * Market Capitalization Weight in the SMA-50. Sentiment weights are normalized to sum to 100%.
SMA-SMT: Blended Tilt
–Define a factor which is a combination of sentiment and momentum tilts.
Senti-Momentum Weight for SMA-SMT = Senti-Momentum Score * Market Capitalization Weight in the SMA-50. Senti-Momentum weights are normalized to sum to 100%.
Comparative performance for all four theoretical portfolios is below.
Overlaying standard benchmark performance you can clearly see the effectiveness of the SMA 50 with various tilt strategies to outperform the benchmarks.
The SMA 50 family of indexes provide a low turnover way to benefit from exposure to social sentiment. To learn more please contact us at ContactUs@SocialMarketAnalytics.com