FAQ

WHAT IS PERFORMANCE DISPERSION?

Performance dispersion is the distribution of medium-term price trends in any chosen investment universe.

For example, over the last 12 months in the US large cap investment universe, the top 25% performers posted an average gain of 50%, while the bottom 25% performers recorded an average loss of -25%. The mid 50% average performance was +11%.

Performance dispersion is a fact that can be observed in any basket of stocks, however is selected (Market Cap, Value, Growth, ESG, etc.) all the time.

HOW IS IT PRODUCED?

Price trends are governed by a variety of factors:

  • Global economic developments
  • Shifting investor sentiment
  • Increasing momentum investors
  • Social media
  • Faster money flows

All these factors contribute to the creation and acceleration of trends. Price trends of stocks are less and less correlated to fundamentals. Fundamentals can easily change in a fast changing macro economic environment and a global competitors evolving landscape. At the same time, the above mentioned factors are increasing the influence on creating and accelerating price trends.

WHAT IS THE IMPACT FOR AN ACTIVE MANAGER?

Performance dispersion is the big opportunity and also the big challenge for active equity portfolio managers. It provides a gold mine for investors that have the tools to capture a reasonable part of the winners and avoid most of the big losers at any time. Exploiting the dispersion is a pragmatic, logical way to generate superior returns and beat the benchmarks.

At the same time by effectively profiting from dispersion a manager can most effectively control the “trend risks” that can produce losses across holdings and negatively impact returns.

WHAT DO YOU MEAN BY TREND RISK?

It is the risk of holding stocks that despite good fundamentals and positive ratings by analysts start falling and experience a bear trend whose duration and magnitude is impossible to forecast.

As well following new investment ideas in securities that in the face of whatever quality screening are displaying a weak price action, that con continue for months and quarters.

Both can severely impact the performance of a portfolio.

On the other hand by simply adding a layer of price trend validation it is possible to achieve a more robust and complete decision process.

HOW CAN I CONTROL THE TREND RISK?

Assessing the true direction and quality of price trends , measuring the aggregated investors money flow in and out of a stock requires specific analytics, based on well tested models that can handle the price noise and volatility and can work across different market cycles (bull, bear and ranging markets).

Trendrating across years of extensive testing developed a simple and effective, multi-factor model that provides a “rating of trends“, differentiating bull trends (A and B rated) from bear trends (C and D rated).

WHAT IS THE RATIONALE BEHIND TRENDRATING ADVANCED ANALYTICS?

The ability to capture trends, profiting from bull markets and avoiding bear phases is the key to superior performance on a consistent basis. Investors that have a good understanding and a disciplined respect for the specific price trend of securities outperform competitors. Any investment strategy can be enhanced by a better synchronization to trends developments.
Most investors use numerous metrics based on fundamental and quantitative data, but very few measure in a proven, objective, systematic way, the real direction of price trends and remain hostage to market noise and opinions, despite the fact that capturing trends is the key to better returns.

Trendrating fills a critical gap of market intelligence by providing a methodology to support a better synchronization for individual stocks and sectors trends, that makes the investment decision process more accurately informed about the factor that impacts performance the most – medium term trends.

HOW DOES IT WORK?

Trendrating provides advanced analytics designed to capture trends, identifying most of the winners and avoiding a large part of the losers with in a yearly horizon. Our model offers a unique rating of trends where 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. Maximising the exposure to A and B rated stocks while avoiding or reducing positions on securities with C and D rating has a measurable impact on returns and risks.

WHAT’S BEHIND THE RATING METHODOLOGY?

Trendrating solution is based on a “pattern recognition” algorithm that processes a large volume of data.
The algorithm works on a multi-factor analysis and uses a self-adaptive, flexible time window. When the different factors are in synch there is a high probability that a relevant trend is in place. The dynamic time window enables a more timely identification of an emerging trend and the multi-factor approach supports an effective filtering of price noise, short term volatility and false moves.

Trendrating methodology has been developed across years of research and development by professionals with 20+ years of experience and successful track record in building models using state of art engines. After testing hundreds of analytical combinations across market history of 25 years for 20,000 listed securities the final model was defined and it is live now since 2014.

HOW TRENDRATING COMPARES TO OTHER METHODOLOGIES?

Traditional indicators from technical analysis and chart pattern studies often yield inconsistent results across different cycles and market types. They also may generate a long string of conflicting signals during ranging markets and high volatility phases.

Old school momentum investing tends to be late as it uses fixed time windows that may require time to adjust to fast changing trends. It usually works on a 9 months fixed window with the risk of being late 9 months in spotting a trend reversal.

Trendrating is the evolution of all this.

The pattern recognition algorithm is faster than old school momentum models in identifying the development of a trend , well before it becomes obvious as a consequence of several months of price moves (the basic foundation of the momentum definition).

At the same time the algorithm is designed to filter out short term moves, volatility, minor price corrections, and therefore keeping a clear assessment of the real underlying premier trend and limiting erratic signals.

WHAT ARE THE KEY BENEFITS?

Trendrating analytics are designed to capture those trends that last from few months to several quarters. The methodology supports the capture of a large part of the best performing stocks while at the same time helps avoiding a good number of the worst performers.

Therefore integrating Trendrating into the investment process can generate measurable results in terms of improved performance management. The impact can be measured and tracked every month as it is easy to see at the statistical level how sound and recurrent is the fact that stocks rated A and B on average outperform those rated C and D.

Generating alpha for active managers is the Mission. This translates into:

  • Better performance for managed and advised accounts.
  • More robust risk management.
  • Greater efficiency, transparency of the investment process.
  • Improved compliance.
  • Global applicability.
  • Time and cost saving.

HOW ARE THE RATINGS USED?

Trendrating analytics contribute to improve a number of critical tasks:

  • Validating investment ideas and analysts’ opinions.
  • Identifying new investment opportunities across markets and sectors.
  • Portfolio management, analysis and optimization.
  • Enabling pro-active advisory of wealth managers.
  • Tactical allocation across markets and sectors.
  • Risk control on individual holdings.
  • Design, test, optimize smarter indices and strategies.
  • Get alerts on positive and negative trend reversals.

DOES THIS CAN CONFLICT WITH MY FUNDAMENTAL DRIVEN INVESTMENT STYLE?

Not at all. Most of our customers use Trendrating analytics as a smart complement to their current decision process. For example in any universe of stocks that satisfy specific fundamental metrics there will be good performers and mediocre performers. Trendrating can help to separate the winners from the losers with a yearly time horizon.

Our customers then use Trendrating analytics to refine either the stocks selection from the desired universe or to adjust the exposure overweighting securities rated A and B, while underweighting those with a C or D rating. By using this simple approach they can easily increase returns and lower risks. And the impact is fully trackable.

Trendrating makes possible to get the best out of most fundamental strategies via a better synchronization to real price trends.

WHAT EVIDENCE CAN YOU SHOW?

We document the edge we provide here: https://www.trendrating.com/evidence/

But most important anyone can easily access our data and technology to test and track in real time the results. We offer free trails to evaluate and validate the value we claim to deliver, fully transparent and measurable every month by analyzing the average performance of all the stocks rated A and B vs, those rated C and D. An easy way to win any skepticism.

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