ALL STAR ANALYST
Zacks All Star Rankings Explained
Zacks Investment Research, Inc. assigns the Zacks All-Star Analyst Ratings to eligible securities analysts on the basis of their stock-picking skills. An analyst's performance is measured by estimating the return an investor would have achieved following the analyst's recommendations.
Star = Stock-Picking Skill in an Industry
Each eligible analyst is assigned one to five Zacks Stars in one or more industries, with five Stars being the best. To be assigned Stars in an industry the analyst must have made at least 3 simultaneous recommendations for companies in that industry during a year. The Stars are assigned to an analyst in an industry based on the performance of a hypothetical model portfolio, created by Zacks, that includes, at any time, all stocks in the industry rated by the analyst.
Stars for Each Year and YTD
Stars are assigned on an annual basis in each year beginning in 1993, and are also assigned for the year-to-date period at the end of each month during the current calendar year. Each analyst is also assigned a lifetime star rating based on his or her performance over the last few years.
What is a BUY or SELL recommendation?
All brokerage firms have their own recommendation scheme. One firm may rate stocks as "strong buy," "attractive," "outperform," "accumulate," "sell," while another brokerage firm may rate stocks as simply "buy," "hold," or "sell." Zacks has standardized the rating scheme's of more than 200 brokerage firms into a fixed 1-5 scale consisting of: Strong Buy, Buy, Hold, Sell, and Strong Sell. Currently, for All-Star ranking calculations we aggregate all ratings into one of three ratings: BUY (includes Strong Buy and Buy), HOLD, and SELL (Includes Strong Sell and Sell). The hypothetical analyst model portfolios consist of all stocks in an industry rated by the analyst.
How is performance measured?
All stocks in an analyst's portfolio are given equal weight. It is assumed that the portfolio starts each year with an equal amount of money invested in each of the stocks recommended by the analyst at the beginning of the year. The holdings in the portfolio are rebalanced to equal weighted positions (i.e. the portfolio's then-current value is divided equally among all stocks in the portfolio) at the end of the day whenever a stock recommendation is changed in the portfolio. Portfolio returns include capital gains and dividends. Technically, this method of calculating portfolio performance is called "time-weighted daily performance measurement." To reward analysts who correctly recommend selling a stock, the returns of stocks with SELL ratings are given a negative weight. A HOLD rating earns the Treasury bill rate of return.
How are Stars assigned?
In each industry, at the end of each year (or YTD period), the analysts are ranked into quintiles (5 groups, each containing 20 % of the analysts) by the performance of their model portfolio during the year (or YTD period). Analysts in the top quintile are assigned 5 Stars, those in the next quintile are assigned 4 Stars, and so on. The bottom 20% of the analysts are assigned 1 Star. All eligible analysts at over 200 US and Canadian brokerage firms are assigned stars.
What is Ordinal Rank?
Within each industry the analysts are given an ordinal rank, which simply states where they rank among their peers within the industry. For example, in the Computer Software industry there were 310 analysts covering the group in 2001. Thus, the top analyst had an ordinal rank of 1 and the worst performing analyst had an ordinal rank of 310. This rank is best used when looking at the analysts with the same star ranking to see who was truly the better performer.
Who is an eligible analyst?
To be an eligible analyst during a year the analyst must have been employed by a brokerage firm at both the beginning and end of the year (or YTD period) and have made at least 3 simultaneous recommendations in one of up to 65 industry groups during the year. The analyst may have changed employers during the year.
How can I find the actual performance of an analyst?
The actual performance of an individual analyst is reported by Zacks only to the analyst and to professional investors using the Zacks Research System. The Stars represent performance ranges.
Copyright © 2013 ZACKS Investment Research, Inc ("ZACKS"). All Rights Reserved. The information, data, analyses and opinions contained herein (1) includes confidential and proprietary information licensed from ZACKS, (2) may not be copied or redistributed, for any purpose, (3) does not constitute investment advice offered by ZACKS, (4) are provided solely for informational purposes, and (5) are not warranted or represented to be correct, complete, accurate or timely. ZACKS shall not be responsible for investment decisions, damages or other losses resulting from, or related to, use of this information, data, analyses or opinions. Past performance is no guarantee of future performance. One or more investment advisory accounts for which Zacks & Company acts as investment advisor may own or have sold short securities and/or hold long and/or short positions in options reviewed in this publication. Officers, directors and/or employees of Zacks & Company may own or have sold short securities and/or hold long and/or short positions in options reviewed in this publication.