How to use it

Discretionary Management

The Challenges

Discretionary portfolio management is full of traps and pitfalls.

The Trendrating Solutions

Trendrating data and technology can help to address the key problems.

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 the majority 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”

Old school 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, momentum players, 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.

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.

The trend toward systematic investing

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. 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 judgement and behavioral drawbacks that often negatively impact an investment process.

Limits of the discretionary approach

  • Emotions.
  • Decisions can be biased.
  • Cost intensive and time consuming.
  • Lack of discipline in managing losses.
  • Behavioural traps (the disposition effect).
  • Over reliance on old-school methodologies of analysis and analysts opinion.

Benefits of the systematic approach

  • Full scalability across markets while improving risk control.
  • An Easy fit to any investment style and factor.
  • A Cost effective and time saving business model.
  • An Objective, pragmatic, disciplined management that can generate superior returns and help you beat the benchmarks.
  • A Higher level of confidence on the expected outcome as models can be massively tested across different historical cycles and potential scenarios.
  • Refine your stocks selection and enhance your tactical allocation.
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