R&D Breakthroughs is a quality investing strategy inspired by a screen devised by US journalist Jack Hough, in his book, Your Next Great Stock. It is partly based on research by Louis Chan, Josef Lakonishok and Theodore Sougiannis in paper called The Stock Market Valuation of Research and Development Expenditures. The strategy filters a value screen with quality factors related to how much a company is investing in its future development. It uses the price-to-research ratio to find value and compares R&D investment in relation to growth, sales and assets. The strategy seeks to identify research-led businesses that are investing significantly in future development in order to try to identify their potential future growth before the market does. Louis Chan wrote: "The clearest evidence that high R&D plays a distinctive role arises from stocks with high R&D relative to the market value of equity. Their average return over the following three years is 6.12% per year."
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Your Next Great Stock: How to Screen the Market for Tomorrow's Top Performers
by Jack Hough
Jack Hough outlines this apporach in his excellent book, "Your Next Great Stock" (see link above). He cites the performance of the AAII equivalent screen, Value on the Move - this has seen a 13.6% return since inception (vs. 1.1% for the S&P 500).
This screen uses the following criteria:
Results are sorted by:
And limited to the first 200 Results
| Returns |  |
 |
 |
 |
 |
 |
 |
FTSE 100 |
|---|---|---|---|---|---|---|---|---|
| 1 week | 2.7% | 2.3% | -3.4% | - | 4.4% | 0.5% | 4.5% | 2.6% |
| 1 month | 2.1% | 1.6% | -3.3% | - | 7.7% | 4.1% | 3.0% | 2.8% |
| 3 months | 6.7% | 2.5% | 19.4% | - | 27.3% | 2.9% | -1.7% | 0.6% |
| 6 months | 35.2% | 35.6% | 79.4% | 8.0% | 107.8% | 5.8% | 18.4% | 14.9% |
| 1 year | 100.0% | 90.1% | 239.9% | 75.0% | 328.0% | 66.3% | 201.0% | 18.4% |
| 2 years | 161.9% | 139.2% | 243.9% | 98.7% | 192.3% | 67.5% | 268.3% | -6.9% |
| Annualised | 15.9% | 28.2% | 36.6% | 24.2% | 29.4% | 25.8% | 39.9% | |
| Risks | ||||||||
| Max Drawdown | -41.3% | -31.8% | -52.5% | -25.8% | -56.4% | -32.8% | -56.2% | |
| Avg Holdings | 24.2 | 24.1 | 24.8 | 0.4 | 25.9 | 25 | 25 | |
| Diversification | Good | Good | Good | Low | Good | Good | Good | |
