VP Research

“Man plus machine beats man or machine alone”

We view ourselves as equal parts data scientist and market historian as we seek axiomatic truths inherent to the investment process.

Our approach integrates insights across three time-horizons:

• Tactical (1-3 months): “Playing the game”, LPPL bubbles/crashes & flows/positioning;
• Cyclical (6-12 months): Leading Indicators of the business cycle and liquidity cycle help to set the medium-term road map;
• Structural (2-3+ years): Industry capital cycles determine long-term outperformance.

Leading Indicators

Not all economic data is created equal:

• Data moves in a predictable sequence from leading (e.g. building permits) -> coincident (e.g. retail sales) -> lagging (e.g. inflation, unemployment).
• Many forecasters miss turning points due to a focus on data that is revised later.
• The biggest data revisions are at turning points in the cycle.
• Many popular economic data is useless in real-time due to data revisions (e.g. GDP growth, non-farm payrolls etc.)

Regime Shifts

We explicitly separate regime shift models from traditional business cycle approaches:

• We view recessions as regime shifts, when hard economic and soft market data get caught in feedback loops.
• Most of the time, the world operates in a “normal business cycle” regime, which can be modelled as regressions or continuous cycle models.

The Capital Cycle

The capital cycle is about competition: too much investment in an industry today destroys future shareholder returns:

• Quantifying the capital cycle makes it actionable.
• An industry with a high capital-scarcity score, that's cheap and hated creates the ideal investment set up.
• We define capital-scarcity using: Capex + R&D as % of assets, Depreciation & Amortization as % of assets, Marginal return on invested capital.

Liquidity

We use “quantity” (Global excess liquidity) and “breadth” (BCFI) indicators to measure liquidity’s leading impact on asset prices:

The consensus focus on central bank balance sheets is incomplete in practice:

• it does not capture private sector behavior (other than indirectly driving animal spirits due to central bank signaling).
• when it does work, it is a coincident measure and not empirically leading by the time you observe the data.
• spurious statistics are often used to overstate the correlation.
• only suited to the post-GFC period, whereas VP’s BCFI and Global Excess Liquidity indicators can be extended back to the 1980s.

“Playing the Game”

Investing is a multi-layered game, where investors must have a view on the future and whether that future is discounted into prices:

• An experienced portfolio manager’s “gut feel” encompasses data subconsciously collected throughout his career.
• We try to speed up the accumulation of experience through rigorous back tests.
• We utilize a suite of tools to understanding positioning, crowding and the tactical outlook.

Writing reports is not the same as managing money in the real world, so any research/paper track record is of limited value. Our goal is that our tools and research are a value-add part of clients’ investment processes. 

We try to objectively quantify the quality of our historical reports by using a simple decision rule: for every historical report section, was the subsequent 6-month forward price move profitable?

*If 6m forward return from report date is profitable

On-demand access to VP’s multi-asset investment tools across three investment time-horizons; the tactical (1-3 months), the cyclical (6-12 months), and the structural (1-3 years).

Research

Our reports integrate the tactical, the cyclical, and the structural. 

• Macro Snapshot: Monthly. Summarizes the most important macro factors and our high conviction views. Get up to speed quickly!
• Leading Indicator Watch: Twice-monthly. Investment-focused coverage of all major investment geographies, reviewing VP’s growth, inflation and liquidity indicators for changes in the 6-12 month outlook.
• Thematic: Ad Hoc. Hunting for the next big idea. VP has previously produced deep dives on Shale, Biotech, the Commodity Supercycle, SPACs, The Age of Scarcity, China, US Housing, Euro Breakup, and many other topics before they were priced into markets.
• Portfolio Watch: Weekly. Reflecting on market action, reviewing ideas and making tactical recommendations.
• VP Understanding: Ad hoc. We write about our models and investment philosophy.

Please note: some older reports are restricted and you need to contact sales@variantperception.com to request access.

Chart Library

Use keywords to filter through our chart library. You can search by asset class, time horizon (tactical, cyclical, structural), region/country, etc. The charts are dynamic and automatically updated on a daily basis.

A good way to start the day is searching for triggered signals/models by toggling the triggered button:

Below are a few search suggestions to get started: 

• “{Country Name} LEI” to see the relevant country's leading indicators. 
• “Recession" to see recession models and inputs. 
• “Desert Island” to see what we consider to be VP’s most important cyclical charts on growth & liquidity. 
• "Tactical Outlook {Asset Name}"
• “US housing cyclical”, "US Inflation cyclical" etc. to see VP’s cyclical (6-12m outlook) charts linked to US housing or VP's charts linked to US inflation. 
• “Structural ranking current account” to see global ranking of countries by current account. 
• “Capital cycle ranking global” to see the top and bottom ranked industries by region according to VP’s Capital Cycle Scores. 
• "Tactical" (1-3 months), "Cyclical" (6-12 months), "Structural" (1-3+ years) to narrow down by time horizon.

Click on the star symbol to favourite the chart. Click on the link symbol to copy the link to share it. Access your favourite charts by clicking on the favourites toggle button in the top left.

Dashboards

Our dashboards offer an “at-a-glance” recap of key charts by topic. The dashboards are updated daily.

Multi-Asset Tactical Outlook Tool

Track proprietary VP indicators to add an uncorrelated input to your trading. Values are updated on a daily basis. 

Click here to view our white paper and here to view our webinar.

Stock Idea Generator

Create your own custom rankings using VP’s curated factors and explore historical factor timeseries for every individual name. Filter by region, sector, index and market cap. Values are updated on a daily basis. 

We often use terms for models, concepts and ideas that our clients are not familiar with. This provides a short summary for common terms, and links to research on the topic if it's available.

VP Analog: We use dynamic time warp to find the best historical price analogs for the trailing 6 month period. We aggregate these historic price analogs to project forward short-term expected returns over the next 100 trading days. Link to relevant VP Tactical Cookbook 2.0 section.

VP Autocorrelation Signals: This is a contrarian short-squeeze tactical model for Equity ETFs and indices. When Investors are capitulating on an index, they sell their losers and buy their winners, meaning that the short-term performance (5 day return) of stocks in an index becomes highly correlated to the long-term performance (6mo, 1 yr return). 

BCFI (Business Cycle Financing Index): A breadth/diffusion index of G20 central bank policy shifts. A lower (higher) BCFI implies a synchronized tightening (easing) cycle among G20 central banks.

Capital Cycle / Capital Scarcity / Capital Abundance: The capital cycle is about competition. Too much (little) investment into an industry leads to more (less) competition, reducing (raising) future returns. Our indicators are inspired by Edward Chancellor's book Capital Returns: Investing Through the Capital Cycle. Refer to our Capital Cycle 3.0 report for more background and examples.

Central Bank Easing/Hiking Regimes: We use a combination of economic and market inputs to classify if a given central bank is in a “easing” or “hiking” regime.  The main practical use for these models is to help time the trend turns in outright fixed income and curve. Link to relevant report.

Crowding: We quantify crowding using unique and uncorrelated inputs to capture a range of investor behaviors, and flag when a stock is most/least at risk from herd mentality. Refer to our Understanding Crowding report for more background and examples.

Cumulative Flows: A self-consistent real-time equity flow proxy. We calculate the cumulative sum of the total daily traded notional for all underlying stocks that are up vs down for well-defined indices or sectors. Link to relevant report.

Excess Liquidity: Narrow money growth - economic growth - inflation. This is one of VP's most important cyclical concepts and is an inherently contrarian indicator.

VP Fast Money (speculative flow proxy): Market participants behave differently when executing trades. When speculative investors dominate daily trading volumes we observe higher realized volatility in the direction of the move. We take this insight to create a contrarian oscillator to identify extreme speculative price moves. Link to relevant VP Tactical Cookbook 2.0 section.

LPPL (Log Periodic Power Law): This refers to a tactical model that looks for patterns of herding behavior in prices. It is based on work by Didier Sornette. Refer to the Understanding LPPL report for more background and examples.

VP Reversal Signal: VP Reversal is a mean-reversion indicator that creates buy and sell signals using a continuous count of higher highs and lower lows. Our signal was inspired by Jason Perl's work on DeMark Indicators.

Stimulus Impulse: Tracking 2nd derivative shifts in both fiscal policy and credit issuance. Fiscal impulse is the 12 month change in the budget balance as a % of GDP. Credit impulse is the 12 month change in new credit issued as a % of GDP.