ERS’s Alpha Search Engine™ enables investment advisors to create and evaluate custom combinations of fundamental, valuation, and technical financial metrics and criteria to select stocks, and then test their performance over any time period or range of periods within the past 35 years. Using your criteria, you can design proprietary stock selection models, calculate their actual average performance over specified X-year and Y-month periods, and compare your portfolios’ performance to the S&P 500 Index.

The Alpha Search Engine™ contains select data from the quarterly financial statements of over 15,000 US and Canadian companies, including data on hundreds of companies which have been delisted due to bankruptcy, acquisition, privatization, or liquidation.


Why is the Alpha Search Engine™ so valuable?

Backtesting technology is an essential tool for investment advisors, and its importance can be broadly categorized into several key reasons:

  1. Historical Performance Evaluation: Backtesting allows investment advisors to test their investment strategies using historical data. This provides a way to see how a strategy would have performed in the past, under various market conditions. It helps to identify the potential returns and risks associated with a strategy before implementing it in real-world scenarios.
  2. Strategy Refinement: By observing how a strategy performs in different historical contexts, advisors can refine and adjust their approaches. This iterative process can help in enhancing the strategy’s effectiveness and in minimizing risks. Backtesting exposes weaknesses in a strategy that may not be apparent in theoretical analysis or paper trading.
  1. Risk Management: One of the critical aspects of investing is risk management, and backtesting plays a pivotal role in it. It helps advisors understand the risk characteristics of their strategies, including the potential for losses during market downturns, the strategy’s volatility, and its sensitivity to various market factors. This information is vital for setting appropriate risk limits and for tailoring investment approaches to the risk tolerance levels of different clients.
  2. Regulatory Compliance and Transparency: In many jurisdictions, financial regulators require a demonstration of thorough testing and a robust analytical foundation for the investment strategies offered to clients. Backtesting helps in fulfilling these regulatory requirements by providing a documented evidence-base that supports the strategies proposed. It also enhances transparency with clients, as advisors can present concrete historical data to back their strategy recommendations.
  3. Confidence and Credibility: Using backtested data, advisors can build confidence in their strategies both for themselves and their clients. Demonstrating a strategy’s past success through backtesting can be a compelling element of client presentations and discussions, helping to build trust and credibility.
  4. Market Adaptation: Markets evolve over time, and a strategy that was effective in the past may not necessarily be successful in the future. Backtesting allows advisors to test strategies over different time periods and across various market cycles, which can provide insights into how a strategy might adapt or need adjustments in changing market conditions.
  5. Professional Competency: Backtesting is considered a core professional competency for investment practitioners, as it allows them to simulate the performance of investment strategies and analyze risk and return without investing real capital in the strategies.

Overall, backtesting is a critical component of a data-driven, empirical approach to investment strategy development. It helps ensure that strategies are not only theoretically sound but also practically viable, which is essential for managing investments effectively.