At PGIM Quantitative Solutions, we believe fundamentals are the most reliable driver of stock prices. Consequently, we construct factors to capture fundamental insights that can inform about future stock performance. Our fundamental factors fall into three categories — value, growth and quality. When constructing these factors, we are always looking for ways to differentiate their construction or refine their measurement.

To illustrate, think of one growth factor — analyst revisions — which we think of as an information momentum signal (Information Momentum Refined: Less Volatility, More Diversification). Analyst revisions reflect the changes analysts make to their forecasts when they have processed newly available information.

We could refine this factor in various ways. We could evaluate differences in diffusion signals versus rate of change signals.1 We could also vary the look-back period for revision, weight each analyst differently and so forth.

However, another question pertains to which analyst estimates are used to construct the factor. Common sources for sell-side analyst insights are IBES, FactSet, Bloomberg and Standard & Poor's. But these analysts, who may be influenced by certain issues (e.g., corporate access), are neither complete nor always the best processors of new information.

One alternative has been to use "crowd-sourced" estimates, which come from independent groups not subject to these pressures.
Another option is to use insights from "local" analysts — those based in, and specific to, the countries in which their covered companies are domiciled. We distinguish them from "global" analysts from major brokers.

These local analysts can access different information, may be better-informed and better able to process the implications of new corporate developments. We believe "localizing" analyst insights can meaningfully enhance our growth factors.