The Next Generation Of Quantitative Investment Strategies
Building Solutions For The New Era
Our Process
Approach
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Our approach begins with rules established from the academics of the Adaptive Market Hypothesis (AMH) which merges the principles of Behavioral Finance with the Efficient Market Hypothesis (EMH).
With the help of evolving academics and advanced computing methods, we have developed a series of proprietary evaluation processes that have been crafted for each enhanced and custom index, since all asset classes have different characteristics, tendencies, and patterns. We make thousands of simultaneous calculations of all publicly available data for indications of quality, value, and momentum that scores and selects the best companies for your strategy.
Applying an algorithm allows us to implement this analysis and rebalance quarterly, keeping your account invested in the companies that are most likely to drive performance.
Data
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We have partnered with multiple providers to accumulate as much information as possible on every company. We extend beyond the company-provided standard publications and disclosures, like quarterly and annual earnings reviews, and seek alternative or soft data that can support or challenge the conventional corporate communication cycles. We source, scrub, confirm and normalize data to help us understand how a company is doing at its core business level.
Algorithms
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An algorithm provides a computerized method of applying complex formulas to large sets of data, leading to improved investment decisions through an automated, rules-based process.
- Can be thought of as a functional solution to the market’s most complex analytical tasks.
- A defined set of rules that use data to determine probabilities of an outcome.
- A way to package and productize intellectual property, knowledge and insight in an efficient and ongoing form.
Criteria & Analysis
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We convert raw data into objective measures which can be applied to a group of similar companies in order to get relative comparisons. We combine our preferred metrics in an order that generates its own functional result. We use these scores to assess the relative prospects for stocks across the investible universe.
The essence of the analysis stage is the search for confirmation of changes in the sales, earnings, and other important indicators of a company’s underlying financial strength and ultimately its fair value.
Selection
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Each strategy begins with a large universe of stocks. For our Enhanced Indices, the process begins with the analysis of every stock in the index. For the Russell 1000, there are 1000 individual stocks to evaluate. Many of our Custom Indices begin with a larger group of stocks we have curated ourselves, ranging from U.S. large cap to international small cap. When we build an index or universe ourselves, we use proprietary requirements, but always consider the basics of market capitalization and liquidity.
Within a given universe, we remove from consideration companies whose profiles suggest poor future returns. We then focus on companies with the highest ranking of the criteria we believe most valuable to any particular group.
Construction
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There are independent construction rules for each strategy. In some asset classes equal weight adds value to the performance, while in others a fundamental formula produces better results. However, there are a few things in common:
How consistently it meets our criteria over time (more consistency can result in a higher weight or longer participation through rebalance intervals).
- How recently it has met our criteria.
- The stock’s overall profile score.
- Risk management considerations.
Rebalancing
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The purpose of reevaluating every stock, in every portfolio, every quarter is the effort to keep pace with the changing environments for businesses. We want to constantly re-orient all the strategies toward those stocks with the highest probabilities of success. Our criterion provides investors with an edge through time, and rebalancing serves to maintain that edge. Therefore, we rebalance each strategy every quarter.
Risk Management
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Every strategy is fully invested and rebalanced every quarter. Investors need to manage their general risk at the allocation level. However, we have always maintained consistent principles of risk management inside each of our strategies. We seek to always remain diversified, even within any specific asset class or sector. We eliminate companies that do not meet standard levels of size and volume traded, as well as those with unusual characteristics, which are typically rejected through our screening process. To achieve our goal of outperformance, we need to be different, but we take specific steps so that each type of difference is not a new source of risk.