CapEx refers to “Capital Expenditures”, i.e. the cost of acquiring and renewing physical assets (e.g. plant, property, industrial and technical equipment).
We analyzed the indicator and found that the most growing stocks in the long-term are those with the lowest value for the factor, i.e. with the lowest capital expenditures.
In the graph, we can see the linearized results[1]of 3 sample portfolios.
- SP&100 tracks the performance of an index of the 100 largest U.S. companies.
- Stocks with the lowest CapEx display a portfolio composed of companies that have the lowest capital expenditures.
- Market neutral portfolio shows the portfolio consisting of firms purchased in long positions that have the lowest capital expenditures, and shorted firms that had the highest capital expenditures.
Stocks are always selected from the SP&100 index. Portfolio adjustments (rebalancing) take place once a month. Fine-tuning of strategies (universe, number of Long/Short positions, leverage, time period, and more) is available in our factor investing app.
Statistical significance of the CapEx factor
The statistical significance of the factor was confirmed by P-Value and T-Stat indicators.
- P-Value = 0.0000002928
- T-Stat = 5.0764735673
Theoretically speaking, we can say that a T-statistic that is greater than 2.0 or less than -2.0 is statistically significant; and if the P-value is less than 0.05, we reject the null hypothesis and say that we found a statistically significant effect.
Summary
The chart and statistical indicators show that, in the long run, CapEx is a statistically significant factor that can be used to construct Long-Short portfolios since companies/stocks with low capital expenditures beat those with high CapEx in long-term performance.
The periods in which the factor performs as expected as well as the stocks with the desired indicator values can be obtained by logging into our application.
Learn more about factor investing.
[1] Profits are withdrawn at each rebalancing, no compound interest is involved.