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Standard and Poor's Andre Archambault
Andre Archambault, BA, JD, MBA, is the Director of Quantitative Strategies at Standard and Poor's Investment Services, and he is also the developer and genius behind Standard and Poor's extremely popular Neural Fair Value (NFV) System for ranking stocks and building portfolios. NFV, which uses neural nets made with NeuroShell, is among the more popular features of Standard & Poor's MarketScope, an electronic investment intelligence service for financial advisors, brokers, and money managers with approximately 77,000 subscribers worldwide.
After briefly practicing law in California, Andre focused his career on investments, moving to New York and starting work as a special situation analyst for a brokerage firm. After 2 years, he was brought to Chicago by the Continental Bank to work as an analyst/portfolio manager in its Trust department. Seventeen years later, Andre left Continental to buy a seat on the CBOE. After about two years of making markets on the floor of the exchange, Andre yearned to return to the more traditional investment world where his long term planning abilities served him best. He accepted an offer by Standard & Poor's to return to New York and head MarketScope’s research department.
Andre Archambault purchased his first copy of NeuroShell in 1993, and has purchased just about everything we have sold since then. "NeuroShell is a great program," he says, "and one of the essential reasons for the success of NFV portfolios. It has been a real performance booster to the original Fair Value System."
The Fair Value system started in 1995, but Andre decided to boost its performance with neural networks in 1999. After a year of work preprocessing data and evaluating inputs, the Neural Fair Value system was introduced at the end of September 2000. The idea was to pick the best performing stocks for a portfolio in which the subscriber was always invested. The first NFV-based portfolio -- called NFV20, as it always held exactly 20 stocks -- became incredibly popular among MarketScope’s subscriber base, and has become the basis for S&P’s model portfolio management. NFV20, from the end of October 2000 to the end of April 2005, had a compounded annual growth rate of 10.9%, compared to -4.6% for the S&P 500 index. A portfolio of $10,000 invested in 9/31/2000 would now be worth $16,253 - pretty good, especially considering how the market as a whole has been during those years.
NFV20 was replaced on MarketScope by a 25-stock portfolio, the NFV25, on October 5, 2004. Since then to the end of April 2005, NFV25 is up 10.41% compared to the S&P 500 index itself, which is up only 1.97%. S&P has developed several other NFV model portfolios that, like NFV20, are used to manage the portfolios of major institutional investors.
Here is how Andre describes NFV25:
"The Neural Fair Value 25 Portfolio, a quantitative model proprietary to Standard & Poor's, seeks to outperform the market by buying undervalued issues with the potential to deliver superior returns over the next six months. The NFV 25 is based upon the Fair Value Portfolio. The Fair Value Portfolio chooses the most attractive stocks based on where stocks are trading in relation to their Fair Value, or the price at which a stock ‘should’ trade. That price is based on such fundamental data as corporate earnings, earnings as projected by Wall Street analysts, price-to-book, return on equity, and current yield relative to the S&P 500. The Neural model is based on "Neural Networks" theory, an artificial intelligence concept designed to replicate the human brain's ability to learn. During a neural model's training period, prediction errors are reduced by adjusting inputs. In Standard & Poor's Neural model, we input the factors that produced better market performance during the most recent 6 months. The Fair Value universe is then filtered through the Neural model creating the Neural Fair Value universe of equities. In other words, Fair Value stocks that are more sensitive to current market movements. The NFV25 portfolio is composed of stocks from the Neural Fair Value universe considered to have superior price appreciation potential.”
In addition to NFV, Andre also publishes other market predictions each day on MarketScope using other NeuroShell models.