Advanced Solutions to Succeed In
The New Market Cycle

Many experts say we entered a new market regime of high volatility and lower returns. In this new market cycle, it is essential to have the right technology to promptly spot emerging risks and opportunities across stocks.

To explore how to respond to this changing investment cycle, we went to Rocco Pellegrinelli, CEO of Trendrating – a Swiss-based, global leader in the field of advanced analytics and leading-edge technology, providing advanced price trend analytic solutions for professional investors. He has stated that “many analytical tools make sense, but do they also make money? It is time to bring real value to fund managers.” He launched Trendrating with the mission to provide innovative technology that can deliver alpha in a measurable, actionable, and repeatable way. He strongly believes that adopting sophisticated analytical tools is the key solution for this new market regime.

  • What is the reason behind Trendrating long-standing success?

Our team has 25+ years of experience developing models and systems for portfolio management. Over the years, we developed a proprietary model and a functionality-rich technology that is today used by 200+ institutional customers as part of their investment decision process. The model is a multi-factor algorithm live since 2013. It was massively tested on 20,000 stocks across the previous 20 years of history and never modified.

The model works on deciphering the aggregated investors’ money flow in and out of stocks to discover actual bull and bear trends early. The result is a rating methodology that makes a valuable complement to the information structure, where (A) and (B) ratings identify bull trends and (C) and (D) rating signal bear phases. The model’s accuracy is extensively documented and proved particularly effective in identifying the current bear market back in January. Trendrating solution combines rating analytics and a rich set of fundamental data with a broad range of tools supporting several market analysis and portfolio management tasks.

  • What does experts means by saying we entered a “regime change” and what are some of the consequences of this change for investors?

If history is of guidance, we can see that equity markets enter long periods of high returns, followed by lengthy periods of lower returns. These periods are called secular trends. It is important to acknowledge that investment strategies that work in bull markets, may not be as effective in flat or bear markets and investment managers must prepare an action plan to handle this.

Index returns can stay volatile and erratic for a few years as the market will fluctuate with sizeable waves up and down across different investment quarters. Passive strategies after a decade of spectacular growth may prove to be unprofitable in the absence of a sustained bull market. Those investors that continue to use the exact same strategies that worked for them in the bull market will be exposed to disappointment and high business risks.

The biggest consequence of this new regime is that active management will be back in demand with performance dispersion across stocks providing the opportunity to outperform. For example, during the last 12 months ending on November 28, 2022, the S&P 500 index was down around 14%, but the top 25% performers in the index were up on average 33% and the bottom 25% were down 62%. Profiting from this new market regime and performance dispersion, requires carefully designed and well-tested strategies to select the winners and avoid the losers that exist in any market wave.

  • How can advanced analytics help professional investors in this new market cycle?

Advanced analytics are a must have for many portfolio managers, that today cannot leverage their full potential due to the lack of access to leading-edge technology that larger institutional investors have access to, that provides more market intelligence, insights, risk management, and discovery opportunities.

Analytics like ours offer access to a whole world of market intelligence and insights that can support active managers to build, test, fine-tune and execute their own winning strategies for the current challenging market environment. The ability to test and compare different strategies across years provides evidence of value and confidence.

  • In the current challenging market environment, can advanced analytics tell us what investment fundamentals work best?

The Trendrating Strategy Management Solution, as an example, was developed to support the design, historical test, optimization, documentation and execution of investment strategies using a rich data set and analytics. Professional investors can select their preferred fundamental metrics, to evaluate results, then explore other combinations of value and growth metrics and discover the most effective combinations of rules and parameters producing the best investment strategies for the current investment environment.

The ability to select and combine different rules and parameters empowers investment managers to create, validate, and document the best investment strategies. Our solution offers a new paradigm to leverage the investment manager’s skills and knowledge base.

  • Can you walk us through an example of how professional investors can utilize Trendrating advanced analytic tools, to fine-tune their investment framework to better handle the current challenging market environment?

Here is a logical sequence supported by the Trendrating system:

Step 1: you can run a comparative analysis of different fundamental metrics to learn the actual contribution, and discover what fundamentals better capture the outperformers. It is interesting to see the difference in performance across the single metrics.

Step 2: you can then explore a few combinations with two fundamental parameters to discover if and how it is possible to improve returns. Exploring alternative combinations of fundamental rules can lead to discovering superior strategies to select stocks. It is possible to maximize the performance using a combination of fundamental metrics that enables a better selection and higher returns.

Step 3: after selecting the best combinations in step 2, you can add a level of trend risk control to validate positive trends and avoid stocks in a bear phase. A sound plan should incorporate this type of price trends valuation element to better assess risks and opportunities across sectors and stocks. When consistent selling pressure overwhelms good fundamentals, a bear trend takes place, irrespective of any reasonable assumption. Acknowledging and respecting trends is a sound practice. Capturing trends is the essence of successful investing. Ignoring trends is negligent and unsafe in this market environment.

  • Any Final thoughts?

The YTD performance of several investment strategies and products proves how ineffective they are in managing the new market cycle.

Not surprisingly many of those strategies need a bull market to work. It is now imperative to reassess the foundations of the investment decision process and evolve toward frameworks that can profit from the performance dispersion across stocks and prosper in a low to negative returns scenario that can last years.

The new market regime is forcing the evolution of the portfolio management industry, and the good news is that advanced tools and analytics are available to support it.

Trendrating delivering leading-edge technology worldwide.

From starting as a portfolio manager to founding Trendrating, Rocco Pellegrinelli, Founder and CEO, has come a long way. He launched Brainpower in 1996 and 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.

Then, he started a research and development project to design a superior model to capture price trends in listed equities. After a few years of massive testing of 350 indicators and thousands of combinations across 25 years of history for 20,000 securities he got what he wanted. It helped to have the support of a fantastic team of experts, now part of Trendrating, a leading provider of advanced analytics and leading-edge technology for equity investing, serving more than 200 institutional customers on a global scale. In 2020, Rocco was nominated as one of the “10 Most Inspiring CEOs to Watch” by Industry Tech Outlook and one of the “10 Best Innovative Leaders” by DigiTech Insight. Rocco is also a Nasdaq contributor to their advisor portal.

Source: Enterprise World Magazine

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