Hortz: How is your solution different from other price trend or momentum models being employed today?
Pellegrinelli: The rationale of technical analysis is sound. No questions, no biases, no human behavior traps. It’s objective, pragmatic, and cynical. But the problem is deciding what indicator to follow during different types of markets. The risk is either reacting too late or trying to make sense of a string of erratic signals. We found that the solution was a combination of multiple factors, which were tested on 25 years of data that encompassed a number of different market cycles. Finally, we had to properly weigh them, and each day they self-adjust (based on volatility) to filter out price noise and reduce the “whip saw” effect.
Classic momentum factor investing is another alternative. This is also good for discipline, but most models follow a predominant indicator and require the confirmation of a few months of performance. As a result, these models miss a good chunk of a price run up and risk being late in identifying key trend reversals. Our model has been live since 2014 and it always behaves as expected, not deviating much from the historical back testing.
Hortz: Any last thoughts or advice you would like to share with financial advisors and asset managers on the importance of adding the price trend dynamic to their investing process?
Pellegrinelli: Successful investing is all about exploiting trends. It’s really that simple. With the availability of trend analysis data and technology, we believe that fund managers who adopt this intelligence will enhance their competitiveness and will survive while other traditional managers will continue to struggle.
Our mission is to help active fund managers fight back and prove to clients that they can outperform passive management strategies. Trend analysis is fast becoming an essential part of the investment process, regardless of style. The time is now for those missing out to incorporate trend analytics into their investment approach.
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