[Data is at the core of all decision making in investment management. The existence of massive sets of new data and information now offers asset and wealth managers competitive opportunities to enhance their investment research and performance. Through the pandemic, or even because of it, the interest in employing data, AI and analytics has been increasing. It is important to note that a consequence of this may be a growing divide between those investment managers that are able to exploit the advantages of data and analytics to drive performance and growth, and those that fall behind. 

To explore some of these newer advanced analytical tools available and how to apply them to your investment process, we reached out to a leader in this field and Institute member, Rocco Pellegrinelli, CEO of Trendrating — a Swiss-based company providing advanced price trend analytic solutions for active investment managers. With the ongoing perceptions emanating from the active-passive investing debate and SPIVA performance reports driving flows to passive funds, Trendrating is taking on the challenge to prove that active managers can beat the benchmarks and passive fund performance with the right tools and market intelligence added to their investment methodologies.]

Bill Hortz: What do you see as the main challenge for active portfolio managers and advisors today?
Rocco Pellegrinelli:
The main challenge for active managers is performance. According to the SPIVA reports (S&P) a large part of mutual funds underperforms the benchmarks year after year. The most recent 2021 year-end report stated 76.67% of U.S. mutual funds underperformed the S&P500 and 73.24% of European funds underperformed the S&P Europe 350.

I strongly believe this is because there has been a fundamental change in stock market dynamics and old-school investment methodologies cannot handle this fast-evolving environment.

The price trend of individual securities is influenced by new forces at work. For example, rapid economic developments, social media influence, investors sentiment evolutions, growing momentum investing, faster reallocations from big funds contribute to and accelerate up and down trends, and reduce the relevance of fundamentals.

Hortz: What do you feel is the solution to this problem?
Managing portfolio risks and maximizing performance is difficult without the ability to incorporate analytics specifically designed to discriminate and validate the actual trends happening in the markets and around individual stocks. These analytics can provide a sanity check on assumptions and opinions.

Price trends exposure is the driver of performance. Acknowledging and respecting trends is the essence of successful investing.

Hortz: Can you give us a better understanding about what types of price trend tools are available?
Different methodologies and tools are available to analyze price trends. From technical analysis indicators to momentum metrics. But often those techniques present limitations and drawbacks including late reaction to trend reversals, conflicting readings during short-term volatility, scarce robustness across different stocks and changing market cycles, inconsistency between historical tests and actual behavior, and limited scalability.

We believe that the best results are produced by systematic models using multiple data points, designed to perform across different market regimes and massively tested on thousands of securities.

Hortz: How exactly can active managers benefit from these analytic tools?
Professional investors can enhance their analysis and investment decision framework by incorporating additional market intelligence and checking more boxes to become more in-synch with the actual price developments.

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