Net Current Asset Value Effect

The Net Current Asset Value (NCAV) strategy is based on Benjamin Graham's approach of buying stocks trading below their net current asset value.

Rules

The investment universe is the US tradable stock universe -- liquid US common stocks with a market-cap floor and contiguous price history. Financial-sector stocks and companies with missing fundamental data are excluded. The portfolio is rebalanced at the end of June using prior-fiscal-year fundamentals frozen as of a March 31 formation date, then held from July.

1. On the last trading day of June of year Y, screen the US tradable universe excluding financial-sector stocks.
2. For each stock, pull Working Capital from its most recent ARQ (as-reported, quarterly) filing with date_key = Dec 31, Y-1, restricted to filings with event_date <= March 31, Y. For calendar-fiscal-year companies this is the prior-year 10-K; for off-calendar companies it is the interim filing aligned to the Dec 31 date key. Late filers (10-Ks filed April-June of Y) are deliberately excluded.
3. Pull market capitalization for each stock from daily data at the March 31, Y close.
4. Drop stocks with missing or invalid inputs (NaN working capital or market cap, non-positive market cap, or zero working capital).
5. Compute NCAV/MV = Working Capital / Market Capitalization for each remaining stock.
6. Select all stocks with NCAV/MV greater than the threshold (default: 1.5).
7. If the screen returns fewer than min-holdings stocks, each selected stock receives a 1/min-holdings weight and the remaining portfolio weight is allocated to the regime-change-asset. Otherwise the selected stocks are equally weighted.
8. Hold the portfolio for one year until the next June rebalance.

Why March 31 as the formation date

The March 31 formation date is this implementation's choice, not a rule from the cited literature. Two reasons drove it:

1. 10-K availability. Calendar-fiscal-year 10-Ks are due within 60-90 days of Dec 31, so by March 31 the prior year's annual report is publicly available for the large majority of the universe.
2. Excluding late filers. Capping event_date at March 31 (rather than at the June rebalance date) excludes Q4 10-Ks filed between April and June. In the 2010-2026 backtest this produced materially higher CAGR than including late filers (28.3% vs 27.0%).

Assets Typically Held

A variable number of deeply undervalued small-cap and micro-cap stocks that trade below their liquidation value. When the screen is sparse the portfolio also holds the regime-change asset (QQQ by default), which is a growth-oriented index used to capture the prevailing market regime when deep value is out of favor.

Why the regime-change asset

The NCAV screen's breadth is itself a regime signal. The screen returns many names after broad market selloffs, when deep value is abundant and mean-reversion rallies are likely; it returns very few names in expensive, growth-led markets, when a concentrated basket of the few remaining deep-value stocks tends to underperform. Filling unfilled slots with a factor-opposite asset keeps the right-tail winners that drive the strategy's long-term returns while avoiding the concentration losses that historically occurred in sparse-screen years (2011, 2015, 2017, 2018, and 2024 in particular).

Presets

• Classic -- disables the floor and holds only the stocks that pass the screen. Closest to Graham's original formulation.
• Diversified -- uses SPY as the regime-change asset instead of QQQ for broader, less growth-concentrated market exposure.
• Defensive -- uses a higher floor (50) and IVW (S&P 500 Growth) as the regime-change asset, trading some CAGR for a shallower drawdown profile.

References

• Graham, B. and Dodd, D. (1934). Security Analysis. McGraw-Hill. Origin of the net-current-asset-value rule.
• Xiao, Y. and Arnold, G. (2008). "Testing Benjamin Graham's Net Current Asset Value Strategy in London." https://papers.ssrn.com/sol3/papers.cfm?abstract_id=966188
• Lauterbach, B. and Vu, J. (n.d.). "Ben Graham's Net Current Asset Value Rule Revisited: The Size-Adjusted Returns." https://faculty.biu.ac.il/~lauteb/data_794/Ben_Graham.pdf
• Oxman, J., Mohanty, S., and Carlisle, T. (2011). "Deep Value Investing and Unexplained Returns." https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1928694
• Damodaran, A. (2012). "Value Investing: Investing for Grown Ups?" https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2042657