How to use it

Discretionary Management

Discretionary portfolio management is full of traps and pitfalls.

The challenges

  • Recurrent underperformance
  • Old school risk control
  • Time management
  • Increasing compliance

Recurrent underperformance #1

The problem
  • Many strategies are primarily based on fundamental analysis and old school-traditional data.
  • Poor consideration and respect for actual price trends.
  • This is why 80% of mutual funds underperform the benchmarks (Source: S&P SPIVA)
Trendrating solution
  • Correlation between price action and fundamentals is getting weaker.
  • Several factors generate trends including sentiment and big money flow. As it is impossible to measure all the complexity, investors should focus on the final effect (trends).

See the forest, not the trees.

Recurrent underperformance #2

The problem
  • The traps of human behavior. (Behavioral finance key flaws)
  • The disposition effect – selling winners too early and sitting too long on the losers.
  • Tendency to forecast and overconfidence.
  • Biases and attachments.
Trendrating solution
  • A disciplined systematic well proven methodology to rate trends and identify trend reversals make possible to limit the damage of subjective human behavior and favor some adherence to the golden rule of investment: “let your profit run and cut your losses”

Traditional risk control

The problem
  • A large part of risk management tools are based on the research and the development from academics developed 20 to 30 years ago.
  • Those theories and metrics are helpful, but cannot capture the complexity of today’s market, partly driven by new variables (a faster more reactive big money flow, social media influence
    and more).
Trendrating solution
  • The concept of risk management requires some re-thinking and more sophisticated tools. One thing is the risk of losses and excess volatility, another thing is the risk of underperforming a basic benchmark and losing assets to the benefit of passive product issuers.
  • The intelligent trend capture analytics of Trendrating provides a new dimension of risk management on a broader scope, targeting the ‘risk to underperform’.

Time management

The problem
  • Precious time is spent by portfolio managers in reading analysts reports, opinion pieces and research whose value in delivering alpha is highly questionable.
  • There is a lot of noise that eats time and can generate a confusing picture.
Trendrating solution
  • Trendrating alternative data and advanced analytics can help to filter the noise, save time and stay focused on what is more relevant – what is the real underlying trend for any security in the universe of interest?

Increasing compliance

The problem
  • Compliance requirements are increasing, and portfolio managers must provide evidence of a robust diligence process behind their investment strategies.
  • Totally subjective decisions or the use of a limited arsenal of analytical tools can impact credibility and confidence.
Trendrating solution
  • The more boxes are checked, the better. Investors must profit from the new generation of data and tools available in the market.
  • A variety of metrics including alternative data and advanced analytics must be satisfied in order to have a trustworthy, saleable and performing proposition.

Trendrating data can help to address key problems

Problem: Recurrent underperformance
Solution: Use Trendrating to maximize returns and beat the benchmarks.

Problem: Old school risk control
Solution: Monitor Trendrating upgrades and downgrades for a timely spotting of trend reversals.

Problem: Time management
Solution: Save time, filter out market noise and gain focus on the key performance factor.

Problem: Increasing compliance
Solution: Enrich your arsenal (war chest) of analytics with proven new generation content.

Systematic Management

What is systematic management?

The management of equity portfolios can be performed on a discretionary basis, a systematic basis or a combination of both approaches. Systematic portfolio management is gaining traction as it often provides better returns, lower deviation from an expected outcome, improved discipline and control, full transparency and consistency of the rules governing investment decisions and lower costs.

Systematic management can easily fit into most investment strategies (value, growth or contrarian) as the starting point is the universe of stocks that satisfy the defined qualitative or quantitative criteria. These systems are then used to decide the selection and timing of investments.

The underlying models are usually tested across years of history to validate the added value they can generate across different market cycles (bull trends, bear trends, ranging phases, high and low volatility) and across a large number of securities. After the testing phase, a real-life validation is required to confirm the quality of the models.

Why the growth of systematic management?

Some of the best performing hedge funds are purely systematic, and are proven to outperform a number of discretionary peers. Even some of the largest asset managers have recently moved the management of funds into systematic processes.

This trend is accelerating due to the following:

  • A systematic approach seems to be more in tune with the increased complexity of trends in individual stocks that are impacted by a variety of factors such as big money flow, sentiment, social media, which can overwhelm fundamentals.
  • A systematic methodology can avoid some of the usual pitfalls of human judgement and behaviour (the disposition effect, biases, attachment, tendency to forecast) and rather operate following the golden rule of investing – let your profits run and cut the losses.
  • A well tested model offers less deviations from expected outcomes under different market scenarios.
  • A model can save time and money.
  • A systematic approach can offer the opportunity to launch new investment lines and products, or can be used as an overly to the existing strategies.

However, the performance of a systematic strategy over time is only as good as the models used.

How it works?

Trendrating provides a well proven solution to investors interested in systematic management of equity portfolios.

Best practice suggests using models that have been extensively tested across at least 6 different market cycles and on different equity markets and a large statistical sample of securities.

Traditional models must be easy to understand, transparent (with no black box/AI mystery) and actionable.

Trendrating is the key. If your desire is to manage equity portfolios on a fully systematic basis we have the technology for you.

The foundation is our unique “trend capture” model based on pattern recognition.

The Trendrating Systematic Management System ticks all the key boxes of robustness:

  • Tested in sample on 20 years of daily data (c.1988-2008) for over 15,000 listed securities on 10 markets.
  • Validated out of sample on 5years of data (c.2009-2014)
  • Used by our customers since 2014.
  • Built on a sophisticated pattern recognition algorithm with transparent rules.
  • Uses self-adjusting time windows for more accurate results.
  • Generates an easy to use rating methodology where A and B rated stocks tend to outperform those rated C and D.

The Trendrating Systematic Management System solution:

  1. Our proprietary, sophisticated model generates alpha via trend capture.
  2. The software is based on a high-performance engine to leverage the model via building, testing, optimizing and managing an investment strategy.
  3. We also supply data feeds that can be easily ingested by proprietary or third-party software applications.

The offer

If you want to manage equity portfolios on a fully systematic basis, we have the technology for you.

The foundation is our unique “trend capture” model based on pattern recognition. This is part of our software solution and is part of a sophisticated engine that enables:

  • The design, back test and optimization of investment strategies.
  • The implementation, tracking and maintenance of systematic portfolios.

Our ratings model and ranking tool can be used as an overlay to any factor-based strategy, as a way to maximize alpha from any specific investment style.

  • The 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 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 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 indicate bear moves. We provide a unique edge where A and B rated stocks on average outperform those rated C and D.

Performance dispersion is there to be captured by smart investors

We provide a unique edge where A and B rated stocks on average outperform those rated C and D.

The ability to capture a good part of the “performance dispersion“ across stocks can dramatically add alpha and produce superior performance on a consistent basis. The dispersion is a repetitive phenomenon year after year.

Trendrating developed a unique pattern recognition algorithm that make possible to capture a large part of the top 50% performing stocks and avoid most of the bottom 50% performers with a medium term horizon (6- to-24 months).

The distribution of performance across stocks is a great opportunity if one has the right tools to capture it.

The dispersion of performance

STOXX Europe 600 Performance*
Index +23.2%
Top 25% +60.1%
Middle 50% -0.6%
Bottom 25% -8.5%
S&P 500 Performance*
Index +28.9%
Top 25% +61.6%
Middle 50% +26.2%
Bottom 25% +1.7%

*12 months ending December 2019.

We offer a simple 3 steps process:

1. Access to the Trendrating platform.

• Define the investment universe and any other constraints.
• Full support of Trendrating to design one or more alternative strategies.
• Testing and documentation of the results for up to 10 years with Trendrating.

2. Real life test

• Test in real time the performance of the strategies for a defined time.

3. Execution

• If satisfied with the results of real life test, sign a license agreement with Trendrating and start making money.

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