Liquidity Return Strategy

Login

Liquidity Return Strategy

The Zebra Liquidity Return Strategy exploits the liquidity premium among listed, public equities. For over thirty years, academic literature has supported the theory that less liquid assets offer higher returns than more liquid assets. However, the liquidity premium is most commonly associated with asset classes with absolute illiquidity, such as private equity, real estate, and venture capital. Zebra Capital is the first to identify the liquidity premium among the public equity markets, and more importantly, establish a liquid investment strategy that captures this premium.

The Zebra Liquidity Return Strategy adds significant value over traditional investment styles through controlled exposure to this pervasive, and well documented, premium. The exhibits below, from "Liquidity as an Investment Style" by Zhiwu Chen, Roger Ibbotson and Wendy Hu, depict the existence of a liquidity premium in the public equity markets, distinct from and additive to traditional, equity premiums, such as value and size.

U.S. Equity Annual Return Quartiles
1972-2010
 
Liquidity vs. Market Capitalization
Size
Liquidity
Low
1		 2 3 High
4
Small  1 18.17% 17.46% 13.51% 6.16%
2 16.87% 15.15% 11.68% 6.52%
3 15.15% 14.36% 12.87% 9.56%
Large 4 12.49% 11.48% 11.55% 9.87%



Liquidity vs. Value/Growth
Style
Liquidity
Low
1		 2 3 High
4
Value  1 20.82% 17.98% 17.02% 12.53%
2 15.74% 14.93% 13.54% 12.45%
3 13.97% 12.46% 10.69% 8.04%
Growth 4 11.93% 11.85% 7.88% 3.88%

Source: Chen, Zhiwu, Roger Ibbotson, and Wendy Hu, “Liquidity as an Investment Style” (Working Paper), June 2007, September 2010, data updated through December 2010

Over the last several years, Zebra has developed the Liquidity Return Strategies. The Strategies seek to invest in fundamentally strong, publicly traded equities with relatively lower trading volumes than equities with comparable fundamentals. The portfolios based on the Zebra Liquidity Return Strategy are well diversified, highly liquid, with a unique liquidity style exposure that is complementary to the other investment styles with which investors are traditionally familiar (value, small cap, momentum, etc.).

Zebra currently manages several variants of the Liquidity Return Strategies, available to both institutional and retail investors. These variants vary by region, market capitalization, leverage, and tracking error. For more information on Zebra’s Liquidity Return products for Institutional investors, please contact Investor Relations at 203.878.1388 or click here to receive an Investor Login.

For more information on Zebra Liquidity Return sub-advised mutual funds, please visit our partners below: 
        • American Beacon Zebra Large Cap Equity Fund 
        • American Beacon Zebra Small Cap Equity Fund