Using technology to improve the management of investment portfolios

WealthTech Views Report Powered by The Wealth Mosaic

Introducing Trendrating

Company overview

The founders of Trendrating have 25 years of experience in building models and software for asset and wealth managers, with a successful track record of providing innovative, world class solutions. The core team includes a seasoned group of passionate developers, mathematicians, and quants. Trendrating has become the leader in Trend Capture models, analytics and technology serving 100+ institutions globally. We cover more than 20,000 instruments including stocks, ETFs, commodities and currencies on a global scale.

Our unique proprietary rating methodology has the ability to identify and score the prevailing price trend of a security with high accuracy. The ability to distinguish between securities based on their respective price trend should be of paramount importance to every portfolio manager, no matter the investment strategy type.

At Trendrating; we serve professional investors that strive for constant improvement and aim at delivering superior value, thereby understanding the importance of not missing opportunities offered by the new generation of data and advanced technology that are in tune with an evolving world. Our key strategic partners include Bloomberg and Euronext.

Thought leader – Rocco Pellegrinelli, Founder & CEO at Trendrating

Rocco Pellegrinelli began his career as a portfolio manager, and he has been a successful entrepreneur in the technology sector for the past 20 years. He created Brainpower in 1996 and as Chairman and CEO, established it as one of the top portfolio management systems globally. After taking the company public on the Frankfurt Stock Exchange in 2000, Brainpower was acquired by Bloomberg in 2006. His vision is encapsulated by the view that “Many analytical tools makes sense, but do they also make money? It is time to bring real value to fund managers.” Rocco believes that the asset and wealth management industry needs to evolve toward higher standards of value to clients, efficiency and cost effectiveness, therefore adopting
new data and sophisticated tools is seen as the only solution. Rocco launched Trendrating with the mission to provide innovative analytics and technology that deliver alpha in a measurable, actionable and repeatable way. In response to Trendrating’s success, Rocco has been nominated by Industry Tech Outlook as one of the “10 Most Inspiring CEOs to Watch in 2020”.

Interview with Trendrating

What is your view on the current state of the market with regards to how wealth managers are managing their investment portfolios. What are they doing well, what are the challenges and what areas could be improved?

In our views for 2020 we outlined a heightened pressure on profitability that is forcing asset and wealth managers to look harder for opportunities to reduce operating costs without impacting the quality of investment capabilities. At the same time, surveys indicate that clients are seeking a broader service, beyond where to invest their wealth, whilst demanding a more sophisticated digital experience. With these critical factors in mind, having the ability to extract intelligence from data, technology and digital tools will continue to play a pivotal role in adapting to these changing conditions and expectations; especially relevant in a post-Covid world.

Using technology within the wealth management process can help avoid a number of the pitfalls of individual judgement and behavioral drawbacks that have negatively impacted investment processes over the years. These include biases, tendency to forecast and the disposition effect – tendency of managers to sell assets that have increased in value, while keeping assets that have dropped in value. In addition, and in particular for fundamentally driven processes, the ability to perform a disciplined sanity check of investment decisions can significantly reduce the need for subjective interpretation and inconsistency.

We believe there remains an extraordinary opportunity for wealth managers to deliver strong performance on a consistent basis. This is because of the performance dispersion seen across most markets, sectors and industries. Performance dispersion is the difference between the best and worst performers within any given investment universe. The dispersion of returns is often overlooked and has been exacerbated amid the global pandemic as price trends are getting stronger and increasingly disconnected from underlying fundamentals. In periods of high dispersion, wealth managers equipped with the right tools have more opportunities to generate excess returns above the index or the benchmark.

Due to the changing nature of the investment markets adding to the increasing complexity, uncertainty and volatility of our current environment, there is a great need for new tools and approaches to traditional investment and risk management processes. In response, there is a growing number of technologies and advanced analytics tools that are unfortunately not being adopted fast enough because of personal fears of disruption and being rendered obsolete in the eyes of clients. In an environment of accelerating change, we believe this is the time to be forward-looking and brave in experimenting and trying new approaches to complement the current methodology.

At Trendrating, our data and analytics are complementary to other sources such as fundamental and quantitative data. We provide an edge that can help ride medium to long term bull trends and avoid the damage associated with bear trends. There is substantial evidence to show that identifying trends at an early stage, both uptrends and downtrends, can help significantly improve risk-adjusted returns. Therefore, our proposition is mission critical – it is the core of an investment management business.

While technologies can help expand the investment toolkit, in order to facilitate a broader adoption of technology in the wealth management market it is critical to be able to offer a seamless integration into the wealth management workflow. The use of investment technology should also extend into tangible operational efficiencies such as providing enhanced revenue capabilities, while reducing costs and risks to the business.

What solution(s) does your company offer the market and how do they help wealth management firms manage their investment portfolios better?

The active management of equity portfolios and funds has been facing increasing challenges over the past years. According to statistics, 88% of all domestic stock fund managers had underperformed the broad S&P Composite 1500 Index over the past 15 years. (S&P SPIVA Report)

This is mostly because of a lack of attention to what drives performance the most regardless of any given investment style; which is actual price trends. Price trends are driven by large institutional money flows that are often influenced by a complexity of factors which includes everyday global information we receive such as the news and macro-economic factors, as well as political events worldwide and other channels such as social media. Generating superior and sustainable performance in this difficult environment bring a particular challenge to active managers which mostly focus on old school approaches. The only solution is the adoption of model driven, proven, alternative data and advanced analytics that provides a better synchronization with fundamentals in the decision-making process.

Trendrating is the result of strong passion and a dream to develop the best trend capture model for medium to long term equity investors. Our team with more than 25 years of experience in building first class fin-tech systems developed what today is the leading provider of trend capture models; Trendrating. Our proprietary pattern recognition model has been back tested for a 20 years period, covers over 15K instruments and has been delivering consistent accuracy to thousands of portfolio managers worldwide since it went live in 2014. Our mission is to deliver alpha in a measurable actionable that is dependable and repeatable, and enable wealth managers and advisors to offer intelligent, profitable active portfolio management raising the service quality and added value to end clients rather just buying passive products.

We provide wealth managers with innovative analytics and tools to stay on top of price trend developments improving returns and reducing the risks for end clients. Trendrating developed a unique proprietary methodology to rate trends where (A) and (B) rated stocks on average outperform those rated (C) and (D). We also introduced a new, critical metric to assess the quality and the risks of a portfolio. It is possible to rate a whole portfolio based on the exposure to individual uptrends vs downtrends. A portfolio rating of (A-) and (B+) signals that most of the stocks in the portfolio are trending up. On the other hand, an aggregated portfolio rating of (B-) or below is warning the manager that there is a big exposure to stocks trending down. Obviously the higher the rating, the better the performance in the following months. The lower the rating, the higher the risk of losses. The solution is a powerful complement to the existing analytical process of active equity portfolio managers.

As of the high increase on the demand for alternative data, we recently came out with a new solution; The Trendrating Systematic Management Solution (‘SMS’). Our SMS is a combination of our proprietary rating methodology; plus, our advanced testing and management platform. By applying the Trendrating Systematic Management Solution into your investment workflow, you can create a systematic process in which the primary driver is your existing investment process, benefitting from our first-class Trend Capture Model, added as an overlay. Our model, well-validated by more than 100 global clients, is specifically designed to improve the synchronization with actual trends for any given investment universe. Importantly, our Trend Capture Model effectively discriminates between winners (A and B rated securities) and losers (C and D rated stocks) over a six to 18-month time horizon, delivering strong alpha capture and improving risk control. In summary, The Trendrating Systematic Management Solution facilitates the creation and the management of an innovative equity product, fully automated.

“Disrupt the balance of power. Raise your knowledge and skills. Empower yourself with the latest technology and last generation of intelligent analytics. Fill the performance gaps of asset and fund managers by providing increased value to end clients. Leverage state of art systems to contribute your own alpha in wealth management. The future of active advisory and management is here.”Rocco Pellegrinelli, Founder & CEO at Trendrating

Source: The Wealth Mosaic – WealthTech Views Report – “Using Technology To Improve The Management of Investment Portfolios”.

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