SMS facilitates performance tracking, rebalancing and detailed analysis that can be exported in PDF/Excel format. Buy/Sell lists are generated automatically on the rebalance date and are traded outside of Trendrating.
This is a disruptive innovation that can deliver great value, efficiency and cost control. Adopting SMS is a no risk decision, as the test, analysis and validation of the strategies are offered at no cost, in order to let managers directly evaluate the results before making a purchase decision.
Hortz: What do you recommend that advisors do to build enough confidence to consider deploying some of these new tools as part of their investment management approach?
Pellegrinelli: It helps if you can show that the technology system and its resulting models have been thoroughly tested, where you can see the reports, the analytics, which we can demonstrate. A model can be tested massively over the last 20 years so you can have a sense of what a model can deliver in different market environments — bull, bear, ranging phases. A manager can then employ and observe the system in the real world to see if there is a continuing consistency. This is a good way to build up confidence in learning how to use this technology.
Hortz: If you had to pick one key benefit that SMS provides fund managers, what would it be?
Pellegrinelli: The key benefit is in identifying areas of performance dispersion within a fund manager’s desired investment universe (S&P 500, Russell 1000, MSCI ACWI, etc.) and investing systematically in the strongest rated stocks in the top quartile, using customized parameters. This is something we refer to as “The Investment Edge.”
Performance dispersion exists and offers outperformance opportunities to be captured by smart investors. Trendrating provides a unique rating model and additional advanced analytics designed to capture trends, identifying most of the strongest and weakest constituents in any equities universe within a yearly horizon. Our model offers a unique rating of trends where A and B indicate a bull trend and C and D mark bear moves. The additional advanced analytics support a further quality ranking, measuring the strength and the consistency of the positively rated trends.
Any investment strategy can be enhanced by a better synchronization to trend development. Most investors use numerous metrics based on fundamental and quantitative data, but very few measure in a proven, objective and systematic way the real direction of price trends and remain hostage to market noise and opinions, despite the fact that capturing trends is the key to better returns.
Hortz: Any last points you would like to share with RIAs and asset managers?
Pellegrinelli: There is still a lot of education that needs to be done which includes building trust in the analytics models. We need to be constructive and tell people that there are tools that can help RIAs and asset managers be more effective. You can generate extra alpha and reduce risk exposure in your client portfolios if you incorporate a discipline that only advanced analytics models can offer. We invite you to explore our research, White papers, videos and monthly research briefs to learn more.
We firmly believe that active managers have a great future if they can level the playing field by incorporating intelligent analytics and alternative data methodologies that can add alpha and more risk control to whatever strategy they have in place. We see an important hybrid model going forward where humans are in charge of making the decisions, but they let advanced technology-based models and tools help in identifying and capturing the trends around their investments. The truth is that there is an increasing need for advanced analytics and new systematic models to be run by humans, not to replace them.
The 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 community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor magazine).