Many advisors want to conduct quantitative analysis but most don't have the time. A new tool from Summit, N.J.-based Markov Processes International may help them perform more in-depth research on client portfolios and investment products.
As investment products become more complicated, portfolio managers and fund buyers are looking for better ways to understand what is happening under a fund’s surface, says Jeff Schwartz, president at MPI.
“Today’s advisors don’t have the time and money to look at the holdings of complex products down at the positions level,” says Schwartz. “A quantitative approach can give them strong insight into what is going on in these products, but it’s time consuming.”
That increasing complexity is one reason MPI is updating its Stylus Pro software to make it easier for advisors and portfolio managers to perform a decomposition of returns analysis, a quantitative approach that attributes fund returns to different factor and style exposures.
The well-documented trend towards investing in passive indexes belies another trend that is at least as prevalent, says Schwartz. Namely, there are more difficult-to-understand alternative products; more products that apply shorting, leverage and derivatives; more products that use tactical shifts; more hedge-fund like equity mutual funds; and more target-risk and target-date products are increasing the complexity of investors’ options.
“Financial advisors can’t be full-time analysts, there’s just too much that they have to do,” says Schwartz. “We encounter the full spectrum of responses, there are firms who do all of the portfolio construction at the home office level because they don’t want the advisor doing that, other advisors could do it themselves but prefer to outsource.”
While many advisors are gravitating towards third-party managers and TAMPs to run their client portfolios, Schwartz says that others are trying to improve their capabilities and market their portfolio management offerings as a differentiator by using MPI’s Stylus software.
“We’ve seen that this kind of portfolio analysis is in demand across the board, no matter how the portfolio management is being delivered to the end client,” says Schwartz. “Advisors want their clients to be able to see a CFA-caliber deep-dive analysis of portfolios that they’re not going to get with a roboadvisor or most out-of-the-box solutions.”
Using quantitative analysis, fund buyers like advisors are evolving the way they evaluate managers, alternative investments and smart and strategic beta products, according to Schwartz.
The updates in the just-released Stylus Pro Version 11.3 introduce Stylus Workspace, a quantitative research framework that allows fund buyers to assess the value and risk exposures they receive from active managers, and to help them determine whether active products and alternatives can be replaced fully or in-part by rules-based factor products.