Value Composite Two (VC2) is an adaptation of the VC1 factor described above. O'Shaughnessy found that the addition of shareholder yield can improve the results of the pure play Value Factor One. This composite is the combination of the following factors:
As with the VC1, companies are put into groups from 1 to 100 for each ratio and the individual scores are summed up. This total score is then put into groups again from 1 to 100. 1 is cheap, 100 is expensive.
O'Shaughnessy uses the VC2 factor in his trended value screen, which is described in more detail here.
The scorecard also displays variants of the VC2 where the score is calculated for the selected company compared to peer companies in the same industry, industry group or sector.
Please note that we use Book-to-Market instead of P/B since it allows a more accurate sorting compared to P/B. Stocks with a high B/M show up at the top of the list, stocks with negative B/M are at the bottom of the list. For the same reason we use Earnings-to-Price instead of Price-to-Earnings and Cash flow-to-price instead instead of Price-to-Cash flow.
Also important is that we always make sure that companies with the same score get added to the same percentile. For stock universes where the number of stocks is less than 100, we make sure that the stocks are still allocated to percentiles from 0 to 100 instead of 0 to the total number of stocks. This is particularly relevant for the industry, industry group or sector variants where if additional filters are used, the number of stocks often drops below 100.
New! The VC2 score is now fully dynamic and is calculated on a filtered stock universe using the filters specified in the Filter Menu. The filters taken into account are: countries, markets, industries, market cap, trading value, results age and currency.