15 Index Curse (Share Suprise)
The Share Surprise (ShsSurp) signal captures unexpected changes in fund holdings that are not explained by reported flows. It does this by estimating the number of shares a fund should have bought or sold over the past month—based on its reported flow and stock allocation, and comparing that to the actual reported position. The deviaton between these two is treated as a “surprise” that may reflect portfolio adjustments such as index rebalancing. As EPFR tracks a broad array of funds linked to diverse set of indices, this factor plays a key role in capturing the aggregate impact of index rebalancing across the mutual fund and ETF investment landscape.
The quants corner, Surprising alue in the space between expected and delivered, by Vikram Srimurthy - Head of Quant Development at EPFR, he writes about the success of this factor as a contrarian indicator, particularly amongst passive funds. The post also ties in “S&P 500 curse” and mean reversion dynamics.
ShsSurp
To capture this, we first calculate Adjusted Shares. This represents the shares held, had there been no flow. To get there, for each stock, we allocate flows over the prior month according to the fund’s current weight in the stock. Scaling the result by the stock’s price at the end of the current month yields the adjustment factor. Subtracting this price-adjusted number of shares from the number of shares held at the end of the month, gives us the Adjusted Shares number. We will sum across all the funds for each security.
To capture the deviation – or “surprise” – for each stock, we perform the following calculation:
\[\text{ShsSurp} \equiv \frac{\sum \text{Adj Current Shares}}{\sum \text{Prior Month Shares}} - 1 \equiv \frac{\sum \sigma - \varphi \times \omega/\gamma}{\sum \sigma - \Delta \sigma} - 1\]
where:
\(\begin{align} \varphi & \equiv \text{dollar flow into a fund} \\ \omega & \equiv \text{% weight held by a fund in a security} \\ \sigma & \equiv \text{shares held in that stock by a fund} \\ \gamma & \equiv \text{price of the security} \end{align}\)
Interpretation ShsSurp
A positive value will indicate a positive sentiment, this can mean funds bought more or sold less than expected based on flow. Similarly a negative value will indicate a negative sentiment, which can mean funds sold more or bought less than expected.
The bigger the number for a given security, the bigger the surprise factor.
Example ShsSurp
Below shows a snippet of what EPFR’s ShsSurp Files contain:
Location: '/StockFlows5.0_Additional/QuantitativeFactors/Monthly/ShsSurp/Aggregate/ShsSurp2022Q2.txt'
| ReportDate | HSecurityId | SecurityName | ShsSurp | |
|---|---|---|---|---|
| 66638 | 12/31/2022 12:00:00 AM | 7041220 | Apple Inc | -0.8327 |
| 66461 | 12/31/2022 12:00:00 AM | 7049454 | Tesla, Inc. | 2.4158 |
| 58184 | 12/31/2022 12:00:00 AM | 7041046 | Amazon.com, Inc. | 2.4144 |
| 63964 | 12/31/2022 12:00:00 AM | 7057091 | Microsoft Corp. | 1.3449 |
| 52992 | 12/31/2022 12:00:00 AM | 7054419 | Exxon Mobil Corp. | -0.6609 |
| 65519 | 12/31/2022 12:00:00 AM | 7056752 | Netflix, Inc. | -1.6315 |
| 61567 | 12/31/2022 12:00:00 AM | 7063679 | Visa Inc | 0.2780 |