Hortz: What do the results prove as to the forces in play that asset managers may not have been capturing?
Pellegrinelli: Why do many mutual funds continue to underperform their benchmarks, despite the investments they make in data and research? In my opinion, it is that many still base decisions primarily on fundamental data and do not develop an adequate attention to the actual price trends. They do not go beyond personal opinions and analysts’ views.
At the end of the day, portfolio performance is the combined result of the individual stock trends that have been captured. The market is impacted by new forces at work where fundamentals alone cannot capture the changed dynamics. But the good news is that alternative data, advanced analytics and latest generation tools are available to compliment investment decision making and fill the gap of wide performance dispersion.
Hortz: How do the results specifically help RIAs and active asset managers in stock selection?
Pellegrinelli: Advisors and managers can enrich their decision process with a pragmatic sanity check and an objective quality control system based on what impacts their performance — getting the trends right. For example, over the last 12 months in the U.S. large cap universe, the top 25% performers gained on average 131%, the mid 50% recorded a gain of 40% and the bottom 25% produced 3%. Tracking and rating price trends of individual stocks can enable portfolio managers to try and capture part of the top performers while limiting the exposure to the losers.
Hortz: Any other thoughts or recommendations you would like to offer active investment managers?
Pellegrinelli: Trendrating indices provide hard evidence of our methodology that is designed to outperform passive benchmarks on a consistent basis across different market cycles. A new generation of advanced analytics and strategy management systems are here to enable pragmatic and passionate managers to win the active-passive debate.
We feel this is a defining time for many active managers that can survive and prosper from the evolving dynamics of the markets, if they are able to strategically adopt and profit from innovations. But the resistance to change and the protection of the status quo are very strong in some organizations and investment professional mindsets. We suggest very strongly that ignoring the importance of assessing and validating individual price trends is very risky.
We invite you to visit our website to learn more about our indices and smart model portfolios that combine fundamental metrics and factor in for price dispersion and capturing price trends. We would like to demonstrate how delivering superior returns on a consistent basis can be aided with the adoption of advanced analytics and models.
And we are so confident about the real value we can deliver and the disruptive nature of our investment technology, that we would like to offer advisors and asset managers a special pricing structure subject to generating alpha via our methodology. We are serious when we say that it is time to really help active managers with a proposition that changes the game.
Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique client/community engagement strategies. The institute was launched with the support and foresight of our founding sponsors — Ultimus Fund Solutions, NASDAQ, Pershing, Fidelity, Voya Financial and Charter Financial Publishing (publisher of Financial Advisor magazine).