Delivering superior performance consistently is the main challenge for many portfolio managers.
The performance of many mutual funds and ETFs
The statistics say that the industry of actively managed products does not deliver the value that it is supposed to produce. Over the last 20 years:
- 93% of funds underperformed the benchmark S&P Composite 1500.
- 94% of large-cap funds underperformed the benchmark S&P 500.
- 94% of small-cap funds underperformed the benchmark S&P Small Cap 600.
- 95% of mid-cap funds underperformed the benchmark S&P Midcap 400.
Similar results were found for growth and value funds of various capitalization categories. (Source: Alpha Architect). In theory, active funds, with their meticulous stock selection, should outperform their benchmarks. But in reality, they often fall short, consistently underperforming the market indexes. (Source: SPIVA Scorecard Report).
The missed opportunity
Active funds and ETFs are supposed to use methodologies suited to profit from the performance dispersion across stocks. Performance dispersion offers the opportunity to beat the benchmarks by capturing the outperformers and avoiding the underperformers. Over the last 6 months, the S&P 500 index gained an 8.2%, but the top 25% performers posted an average gain of 32% and the bottom 25% performers lost an average of -17%. A well-designed stock selection process should enable active portfolio managers to exploit this differential.
What the industry is missing
Why actively managed products are unable to exploit the performance dispersion and deliver just average returns? Maybe they just need and deserve better information and smarter tools. The conventional research, data and systems broadly used, obviously fail at providing an edge. It is time to consider expanding the information framework and using more advanced analytics and leading-edge technology that can make a difference. Better information can support better decisions and can deliver better performance.
Trendrating Empowering Professional Investors
The mission of Trendrating is exactly to fill this critical gap and to provide the intelligence and insights that can help exploit the performance dispersion across stocks. The starting point is fact-finding and unveiling what best captures alpha. Our solution enables efficient discovery via rigorous testing, optimization and validation of the actual alpha contribution from any parameter and combination. Trendrating wants to offer an answer to critical questions, such as:
- What are the selection criteria that are best rewarded by the market over the cycles?
- Which fundamental parameters yield the greatest profits by identifying outperforming stocks?
- Which combinations of selection rules guarantee a robust investment decision framework to optimize the performance?
Answering these questions makes the difference and an objective fact-finding process is the only way to find the definitive answers. Trendrating technology is making this possible and easy.
How does it work?
- Pick any selection rule from a rich database of parameters, covering fundamental, quantitative, volatility, size, and trend metrics.
- Build a selection strategy using any combination of parameters, test over the years and assess what works best.
- Explore alternative combinations of rules that check more quality boxes.
- Optimize and discover the winning mix.
- Validate the results with rigorous evidence across the years.
With smarter insights based on hard fact-finding and the possibility to design, explore and validate strategies checking the right boxes we offer investors the power to make better-informed decisions and profit from the performance dispersion across stocks.
Interesting findings
The ability to explore different combinations of rules and compare the historical performance offers a wise, sound information framework, based on facts rather than hypotheses.
Amongst the findings are:
- Different markets and different sectors may reward distinct fundamental rules. What works for one sector may not work for another.
- The selection of US stocks using single-value metrics has not been very successful for the last few years. However, checking more boxes and adding a growth ranking can dramatically enhance returns.
- Combining the best-performing fundamental metrics with a filter to discriminate positive vs. negative trends may offer superior returns consistently.
Knowledge of facts protects from the pitfalls of assumptions
Discretionary investors can use Trendrating platform to enrich their knowledge and use the resulting insights to optimize their investment strategies and model portfolios. Systematic investors can easily build, document and execute custom-made, rule-based strategies. Investors can profit from the additional market intelligence and the well-documented insights provided by Trendrating, and not available in other systems and services. The contribution to alpha that can be extracted from using our platform is fully transparent and measurable. This is the foundation of our proposition, setting our solution apart from conventional offers.
“I’ve always been driven by the idea that better information leads to better decisions—this is what I set out to achieve with Trendrating.”
“In my experience, the market rewards those who base their strategies on facts rather than assumptions, and that’s what at Trendrating we strive to offer every day.”
About Trendrating
Trendrating is a leading provider of advanced analytics and leading-edge technology to professional investors. Our ‘Performance Management Platform’ is used by 250+ customers, including some of the largest players, who find in our system insights and market intelligence not available in the other services they have. Our customers can easily assess and track the actual contribution to alpha that our data and tools can deliver. The difference we make is in the ability to discover the parameters that best capture the outperforming stocks and to build and validate strategies and model portfolios with a few clicks. The platform also offers a directory of sample strategies combining the most productive fundamentals for any specific investment universe and a well-tested trend validation model, filtering out falling stocks. Our customers can use those sample strategies as a starting point and customize them as they like. We believe that investors need and deserve better information and tools. Our mission is to offer a new paradigm of value. In 2022 Trendrating was nominated as one of the ‘Best Strategy Management Solution Providers’, by the CIO bulletin. In 2023, Trendrating was featured on the cover of the Enterprise World Magazine, as one of the ‘Most Trusted Advanced Market Analytics Solution Provider Platforms’, as well as one of the ‘Top Performance Management Platforms To Watch’. This year Trendrating was awarded as one of the ‘Most Innovative Companies To Watch’ by the CEO Views Magazine.
About The Founder
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: CIO Today Magazine