investment-strategies

Investment Strategies.

Our systematic investment strategies run on quantitative models derived from statistical and mathematical analysis. Our predictive models seek to identifying statistically significant, consistent over time and non-random market inefficiencies through hypothesis, formulation, testing, and validation based on practical knowledge of the markets and advanced computational methods.

The 4 states of the economic cycle.

The economic cycle is the fluctuation of the economy between periods of expansion (growth) and contraction (recession). Factors such as Gross Domestic Product (GDP), interest rates, total employment and consumer spending can help to determine the current state of the economic cycle.

We have developed quantitative models to track the 4 factors that affect the stock movements in the 4 states of the economic cycle: the peak or deflation state – the top of the economic cycle where growth rates start to fall – the contraction or recession state – economic downturn where the growth rate falls; the trough or recovery state – where economic growth becomes positive again; and the expansion or growth state – which is the period of high economic growth possibly causing inflation. Our predictive models make its bets accordingly depending on the current state of the economic cycle.

Our algorithms seek to benefit from exposure on relationships and relative differences between clusters of stocks through the various states of the economic cycle – from momentum, value, quality to minimum volatility stocks – rather than bet on the outright rise and fall of individual stocks. Our predictive models seek to take advantages of the inferred states of the economic cycle.

Value, quality, minimum and momentum strategies have behaved differently depending on the state of the economic cycle. The first and most powerful indicator of the macroeconomic models is the current state of the economic cycle, we believe. We identify the current state of the economic cycle by analyzing leading economic indicators. Our proprietary research platform which combines big data insights with traditional macro indicators, is one tool we use to keep track of the 4 states of the economy cycle.

We then use predictive models to determine when to tilt our exposures toward or away from each strategy across the economic cycle. Performance returns can be enhanced by tilting or adjusting our exposures through the states of the economic cycle rather than short-term in-and-out timing. It’s all about tilting not timing, in our view. We prefer quality and minimum volatility strategies during the recession season, value strategy during the recovery season and momentum strategy during the growth season.

Historically, the quality and minimum volatility strategies outperform during the recession season. In 2001 and 2008 economic recessions, these same strategies did very well entering the recession season while the value stocks did well coming out of the recovery season. Momentum strategy tends to outperform other strategies during the growth season.

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