Question for the community. Do you filter out the Financial Sector in a Micro Cap strategy?
Sector!=FINANCIAL
Would there be any advantage of doing so?
Thank you
The conventional wisdom/traditional approach is to generally screen out both utilities and financials, as their financials should be interpreted differently than say industrials, tech, etc.
There are some balance sheet ratios that are not comparable between financials and non-financials, but other factors such as growth, momentum and other technicals, sentiment etc are still fair game IMHO.
From a practical point of view, I have two main microcap strategies, one includes financials, the other screens them out. That said, the one that includes financials is actually doing quite well this year, the other not so much.
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Personally, I don’t filter out financials or utilities in my microcap strategies. I include both. But I make sure that if I’m using items like gross profit, debt, enterprise value, or current assets, none of which apply to financial companies, I use alternatives to those items or assign them as neutral N/As.
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Thank you both, this is usefull