Delivering superior performance on a consistent basis is the main challenge for many portfolio managers.
The performance of many mutual funds and ETFs.
The industry of actively managed products seems failing to 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 SmallCap 600.
- 95% of mid-cap funds underperformed the benchmark S&P Midcap 400.
- 94% of multi-cap funds underperformed the benchmark S&P Composite 1500.
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
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 in the US large-cap investment universe, the top 25% performers posted an average gain of 44% and the bottom 25% performers lost an average of 11%. That marks a 55% average differential between the losers and the winners. However, how many active portfolio managers have been able to profit from this fact?
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 and at facilitating to exploit the performance dispersion. 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. Decide the allocation and rebalancing rules.
- Test in any investment universe across 15 years of market cycles and assess the actual alpha contribution.
- 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.
- Design your winning strategy and execute it.
Interesting findings.
The possibility to test and assess the value of any parameter in selecting stocks over a broad time window and across a statistically significant sample can be enlightening. The ability to explore different combinations of rules and compare historical performance can offer 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, by 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.
About Trendrating:
Trendrating mission is to provide advanced analytics and leading-edge technology helping hundreds of global money managers to maximize their performance and enhance risk control. Our clients face increased challenges in the current stock market cycle and need superior data and solutions, that provide better market intelligence to exploit the broad performance dispersion across stocks. Conventional data and ordinary research are often ineffective at delivering alpha. Trendrating solutions enable pragmatic fact-finding about what is the historical performance of different selection parameters including fundamental, quantitative and trend criteria.
The solutions also make it possible to explore investment strategies by checking more boxes and discovering the best combinations for any specific investment universe. This valuable market intelligence, not easily available, can make a big difference in the quality of the investment process. In 2021 Trendrating was awarded as one of the ‘Best Data Analytics Companies of The Year’ by CIO Bulletin. In 2022, it was awarded as one of the ‘Best Strategy Management Solution Providers’, by the same interactive, preeminent leadership platform. 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’.
About Trendrating customers:
The solutions of Trendrating are supporting a broad range of tasks and can easily fit into most investment decision processes. Customers include asset managers, mutual fund managers, wealth managers, Hedge fund managers, advisors and family offices. The use cases are:
- Analysis of the performance dispersion across stocks, markets and sectors.
- Exploiting sector rotation.
- Validation of investment ideas via a detailed and enhanced ranking functionality.
- Spotting investment opportunities that combine the best parameters.
- Timely portfolio risk management and optimization.
- Building, testing, execution and tracking of your customized improved investment strategies.
- Historical analysis of the alpha contribution across fundamental criteria.
- Customized Reporting Templates
