Trendrating: Disrupting Active Management

Successful investing is all about exploiting trends. Trend analysis is fast becoming an essential part of the investment process regardless of the investment style. The time is now for those missing out to incorporate trend analytics into their work flow. Adding trend analytics helps managers follow the Golden Rule of successful investing – let your profits run and cut your losses. Fund managers need to reconsider the value they get from analyst opinions, biased broker provided research, and plain vanilla data and analytics providers that haven’t changed or proved their worth for decades. This is where Trendrating can help fund managers.

Founded by Rocco Pellegrinelli in 2013, Trendrating is helping the fund managers fight back and prove to clients they can outperform passive management strategies to demand higher fees. We talked with him recently to get insights on the Trendrating platform and how his company is helping the leading companies of the world incorporate a systematic approach for managing equity portfolios.

The Leader UpfrontRocco Pellegrinelli, Founder and CEO at Trendrating

Rocco is a successful entrepreneur in the technology scene and has been in the FinTech industry for over 25 years. He began his career as a portfolio manager. In 1996, he began Brainpower. The company went on to become one of the top portfolio management systems globally. The company went public on the Frankfurt Stock Exchange in 2002 and was acquired by Bloomberg in 2006.

What inspired you to start Trendrating?

I believe that the asset and wealth management industry needs to evolve toward higher standards of value to clients, efficiency, and cost-effectiveness, by adopting new data and sophisticated technology. That is why I created Trendrating.

Today, Trendrating is a global leader in the field of advanced analytics and “Trend Capture” technology, serving thousands of portfolio managers worldwide. Our proprietary methodologies are used as part of their investment decision-making process by portfolio managers to maximize returns and better control risk.

Bloomberg and Euronext partner with us to provide our data and analytics to their clients. Our mission is to provide first-class technology that delivers alpha in a measurable, actionable, repeatable, and unquestionable way.

What are some of the biggest challenges that active managers are facing in today’s market?

The active management of equity portfolios and funds has been facing increasing challenges over the past 10 to 15 years. According to statistics, 88% of all domestic stock fund managers underperform the broad S&P Composite 1500 Index over that period (S&P SPIVA Report). The biggest contributing factor to this underperformance is a lack of attention to what drives performance the most, price trends. This applies to all types of investment philosophies.

Price trends are driven by large institutional “Money Flow” that is often influenced by a complexity of factors that includes 24×7 global news, macro-economic factors, geopolitical events, and social media. Generating superior and sustainable performance in this difficult environment brings a particular challenge to active managers who mostly rely on “old school” Fundamental or Technical Analysis.

The only solution is the adoption of model-driven, robustly tested and proven, alternative data and advanced analytics that provides a better synchronization with fundamentals in the decision making process.

How does Trendrating address the issue?

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 has over 25 years of experience in building first-class FinTech systems.

Trendrating was back-tested over a 20 years period, on 15,000 securities before going live in 2014 with clients. The output of our sophisticated algorithm is transformed into something easily actionable and intuitive. Our model offers a unique proprietary rating of trends where the ratings (A) and (B) indicate a bull trend and (C) and (D) mark bear moves. We provide a unique edge where (A) and (B) rated stocks on average outperform those rated (C) and (D). Our range of products includes The Trendrating “Performance Management Platform”“Advanced Analytics Data Feed” and “Systematic Management Solution”, which was recently released to clients. The Trendrating solutions are a powerful complement to the existing analytical process of active equity portfolio managers.

Tell us about your new product, the Trendrating Systematic Management Solution.

Asset Managers have been asking for advanced model-driven portfolio construction tools to launch their own investible products for their clients. After a long time of development and testing, we launched the Systematic Management Solution in July. Our (“SMS”) is a combination of our proprietary rating methodology coupled with our advanced testing and management platform. By applying the Trendrating Systematic Management Solution, you can create a systematic process based on any investment universe you choose and improve the synchronization with actual trends for those securities. Importantly, our Trend Capture Model effectively discriminates between positive trends (A and B rated securities) and negative trends (C and D rated stocks) over a 6 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.

What are the benefits of incorporating a systematic approach into the decision making process?

The systematic management of equity portfolios is a good alternative to the discretionary management approach. It can improve performance, efficiency, and save costs. Leading firms are now shifting the management of some funds from people to models.

With fundamental active management increasingly struggling to deliver consistent outperformance versus benchmarks over the medium-to-long term, a systematic model-driven decision-making solution offers investors the necessary tools to address the increased complexity of stock trends. Importantly, by its very nature, such a solution is able to avoid a number of the pitfalls of human judgment and behavioral drawbacks that often negatively impact an investment process.

The benefits of systematic management can be particularly rewarding as it offers full scalability across markets, easy fit to any investment style and factor, cost-effective and time-saving business model, objective, pragmatic, disciplined management that can generate superior returns and a higher level of confidence on the expected outcome as models can be massively tested across different historical cycles and potential scenarios.

What final message can you give to active managers to help their practice?

Our mission is to help fund managers fight back and prove to clients they can outperform passive management strategies to demand higher fees. Trend analysis is fast becoming an essential part of investment process regardless of the investment philosophy. The time is now for those missing out to incorporate trend analytics into their work flow. We are here to disrupt an evolving industry, fund managers need to reconsider the value they get from analyst opinions, biased broker provided research and analytics providers that haven’t proved their worth for years. Successful investing is all about exploiting trends. It’s really that simple. With the availability of trend analysis data and technology, smart fund managers adopting this intelligence will outperform those who don’t.

“By 2025, 30% of the actively managed portfolios will be run by models, with the experts focusing on the macro decisions and the selection of models“ – Rocco Pellegrinelli, Founder and CEO at Trendrating

Source: CIO Bulletin

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