Active fund managers face a big challenge — consistently picking winners and avoiding losers is very hard to do. How big is the problem? According to the S&P Indices Versus Active (SPIVA) Scorecard, through March 2020 more than 88% of all USA stock fund managers have underperformed the S&P Composite 1500 Index over the past 15 years.
Why Active Managers Struggle
Several factors contribute to the challenges fund managers face:
So what can active managers do to achieve superior results?
Return Dispersion Is a Good Place to Start
Return dispersion is the cross-sectional variation in returns across a universe of securities over a given time period. The following charts show how return dispersion works across world markets in all types of market conditions.
The empirical evidence is irrefutable: markets exhibit dispersion in returns in all market phases.
So How Can Fund Managers Profit From Return Dispersion?
Capturing price trends more consistently is key. To do this, managers must:
Active managers must be able to do all three of these things accurately, consistently and repeatably — no matter the market cycle.
If your investment process underperforms when capturing trends, DIH may be able to help.
DIH is pleased to announce its recent partnership with Trendrating, a market-leading provider of analytics and technology for professional equity investors, to offer the company’s trend capture ratings data and analytics, which dove-tail neatly with DIH’s existing data offering. Portfolio managers and quantitative analysts can now add a robust methodology to rate price trends, validate investment ideas, improve risk controls and capture additional alpha. Over 100 asset managers around the world benefit from these analytics every day.
If you’d like more details on Trend Capture Analytics and how it can improve your investment process, please contact us.
Also, you can connect with us on LinkedIn and Twitter.
Stay Healthy. Stay Safe.
Data In Harmony partners with leading analytics and technology provider Trendrating to offer the company’s trend capture ratings data and analytics to benefit DIH’s institutional clients and prospects.
Austin, TX (October, 15, 2020) — DIH has partnered with Trendrating to offer the company’s trend capture ratings data and analytics, which dove-tail neatly with DIH’s existing data offering. Portfolio managers and quantitative analysts can now add a robust methodology to rate price trends, validate investment ideas, improve risk controls and capture additional alpha. Such advanced analytics are a powerful complement to both fundamental and quantitative investment approaches.
“Institutional investors who integrate trend capture analytics into their decision process can benefit from more accurate trend assessments.”
— Tom Myers
Founder & Principal, DIH
Identifying stock trends consistently is a challenge, no matter where in the cycle the market may be. Yet capturing trends is crucial to the success of any investment strategy, no matter its style or philosophy. Institutional investors already analyze fundamental and quantitative data. So why do they fail to properly identify and measure medium- to long-term trends?
Most approaches fail because:
It’s no wonder that more than 88% of all USA stock fund managers have underperformed the S&P Composite 1500 Index over the past 15 years, according to the S&P Indices Versus Active (SPIVA) Scorecard, through March 2020.
Return dispersion is inherent in equity markets across different market conditions. In most periods, the majority of the aggregate return contribution is concentrated in circa 20% of the constituents. The challenge for investment professionals is to be able to consistently identify this group of outperforming stocks on an ex-ante basis in order to profit from this inherent dispersion in cross-sectional returns. Trend capture analytics can help expose these dispersions through multiple levels of intelligence, including rating and scoring metrics that help identify the strongest investment trends — as well as pointing out those to avoid — typically over a time horizon of a few months to a few years.
More than 88% of all USA stock fund managers have underperformed the
S&P Composite 1500 Index over the past 15 years.
Any investment strategy can be enhanced by a better synchronization with actual trend developments, especially considering the weakness in correlation between fundamental analysis and price action. End users who integrate trend capture analytics into their decision process can benefit from more accurate trend assessments, vital data that fill a critical gap of market intelligence in the workflow of asset managers.
Learn more about how DIH can make your data work better for you.
About Data In Harmony
Data In Harmony (DIH) is both a data consultant and a data provider. DIH’s data experts help companies find and on-board the data they need, as well as monetize their data to create new revenue streams. DIH also provides a wide variety of financial data, including trend capture analytics, reference data, corporate actions and more. DIH also offers alternative data, including real estate, class action lawsuits, bankruptcies and private company data. DIH licenses the same data engineering tools it uses to pull in raw data, process it and deliver finished data files to end-users in various formats.
DIH’s clients include startups, established firms and household name institutions located around the world. They choose to hire DIH to help improve data quality, reduce data costs and provide them with new quality data sets.
Trendrating is a market leading provider of analytics and technology for professional equity investors. The company serves 100+ customers globally in the areas of asset management and wealth management. Trendrating has developed a proprietary, sophisticated model to rate securities, indices and portfolios. The rating captures medium term price trends on securities, assesses a portfolio’s exposure to bull vs. bear trends and supports a more effective and pro-active risk control. The mission of the company is to help customers to more effectively capture trends, profiting from bull markets and avoiding bear phases as this is the key to superior performance on a consistent basis.
Source: Cision PCWeb
The Coronavirus pandemic is driving a huge increase in the number of companies filing for bankruptcy. Corporate bankruptcies in the USA are up 76% through June 2020. We are on track to match (and surpass) the Great Recession in terms of bankruptcies and assets lost.
There are several reasons this phenomenon could be important to you:
Let’s dive a little deeper into the bankruptcy numbers to see where your risk (and potential reward) may lie.
Corporate Bankruptcies in the USA
It’s just not the number of corporate bankruptcies that is alarming, but the value of assets involved. Based on DIH’s new bankruptcy data set, we’ve seen $173 billion worth of assets going into bankruptcy through June. That surpasses the total for all of 2019, which included the whopper $71 billion bankruptcy of the California utility company, PG&E. Besides the staggering amount in assets, we’ve seen a severe increase in the number of large companies filing. So far, 29 companies with over $1 billion in assets have filed versus only 19 in all of 2019.
Several industries have been hit especially hard, including Energy (30% of total assets) followed by Telecom, Airlines and Retail. Several filings were by well-known brands like Hertz, J.C. Penney, Neiman Marcus and Chuck-E-Cheese.
Debt Increases to Make Up for Cash Shortfalls
Unfortunately, there is nothing in the data to make one think the current trend won’t continue. Ben Schlafman at New Generation Research, Inc. notes:
“Many companies have raised vast new sums of debt to fund their upcoming cash flow shortfalls. June’s high-yield issuances of over $50 billion is a monthly record, and the year-to-date total of $205 billion is 70% above this time a year ago. But lower revenues and earnings have reduced these companies’ ability to service their existing debt, much less the new debt. And, the proceeds aren’t generally being used to fund profit-generating initiatives but rather merely to keep the lights on. This heightened default risk isn’t necessarily priced into high-yield bonds. Investor optimism over the economy’s re-opening, along with explicit verbal support (albeit little actual high-yield bond-buying) by the Federal Reserve, has driven aggressive buying, which has narrowed the spreads over investment grade bonds.”
So, has this COVID bankruptcy crisis affected your business, clients, vendors or your investment portfolio? If so, you are certainly not alone. Plenty of firms have already requested bankruptcy data from DIH.
If you’d like more details on corporate bankruptcies and how to navigate an uncertain business future, please contact us.
Also, you can connect with us on LinkedIn and Twitter.
Stay Healthy. Stay Safe.
Tom Myers is the founder of Data In Harmony (DIH), a data consultant and provider. DIH help firms find the data they need, validate & clean data, integrate data, and monetize their data. DIH also provides a wide variety of financial and alternative data, as well as data engineering tools.