Author: Trendrating – trendrating.com
Any investment strategy is as good as the actual performance it can produce.
Some strategies have a well explainable, convincing rationale, that makes sense, but at the end they do not make enough money to beat passive strategies that simply replicate a benchmark. A disconcerting and worrisome result for active managers that are expected to deliver alpha and beat indices. Unfortunately this seems to be the case for a large number of fund managers, as according to SPIVA scorecard more than 50% of mutual funds underperform the relative benchmark. Changing this requires rethinking the foundation of investment strategies that look old-school , and are unable to capture the changing dynamics of price trends in a more complex world where the big money flow dominates. Still the resistance to change and the protection of the status quo are strong in some organizations, but how people can expect to get different results if they continue to do things the same way? Advanced analytics and strategy management systems of new generation can help.
Delivering alpha is challenging and active portfolio managers must consider any available content and tools that can contribute to maximize the performance. A key area of improvement is offered by the performance dispersion phenomenon. Measuring and capturing the performance dispersion observable across stocks in any investment universe can dramatically enhance returns for most investment strategies. The emerging theme is the inclusion of sophisticated “trend discovery“ models to perform “trend validation” sanity check and “trend allocation analysis and optimization” of portfolios, capable to add pragmatic metrics with predictive value of returns. For the 6 months ending on May 2021 the SP500 index was up around 24% , but the top 25% performers posted an average gain of 65% and the bottom 25% -1%. Performance dispersion is a gold mine for active managers that have the tools to capture even a small part of the winners, while limiting the exposure to the losers.
Trendrating indices incorporate a “trend validation” methodology to strategies based on value, growth and large cap selection parameters. The positive differential vs. the benchmark is calculated by Solactive AG, with a 10 years statistical evidence. Trendrating indices (TREULC, TREUV, TREUG, TRUS, TRUSV and TRUSG) wants to demonstrate that adding a layer of intelligent “trend validation and selection” to whatever investment strategy can generate alpha and beat the benchmarks in a consistent fashion. Trendrating “strategy management solution” enables to design, test, optimize, validate and document bespoke active equity strategies using a rich set of data including fundamentals, quantitative and trend parameters from which the user can select the desired combination.
