Integrating quantitative analytics and data science to gain an unfair investment advantage By Maybank Asset Management 2 Feb 2021
Investors have always been adept at using new technologies to gain an advantage. Traders from ancient Venice would use telescopes to inspect the flags of incoming vessels, guessing the cargo they were carrying, and then buying and selling commodities accordingly. Today, the investment industry’s unending information war has been supercharged by the era of big data and artificial intelligence.
A Factor is any characteristic of a basket of securities that is important in explaining their return and risk. The following factors have been identified by academics and widely adopted by investors over the years as key exposures in their portfolios:
For our quant fund, we use a combination of over 20 proprietary factors which we term as “M-TIGER” for short – it stands for Momentum, Total Capital Management, Intrinsic Value, Growth, Expectations and Risk. The underlying factor model is also deployed regionally to help our discretionary portfolio managers and analysts make better decisions, through an investment dashboard that we developed in-house.
What are the risks of factor investing?
The combination of individual factors into a blended multi-factor fund delivers a better risk-reward ratio than any of the individual factors. This can lead to higher performance and more consistency across market cycles. Diversification across factors is a sound option for long-term investors. However, investors should note that it does not fully eliminate equity market risk. For the quant fund, risk is controlled using the following 3 main features:
We are excited to bring to market a new and innovative product. We have designed the All-Weather Quant fund to work in most equity market conditions. During normal market conditions, investors in the fund gain exposure to multiple Factors to drive investment returns. During major market downturns, the Quant Fund will allocate assets from equities into cash in an attempt to reduce downside risk. We are also developing new investment strategies using Artificial Intelligence and Machine Learning which we hope to integrate into this fund in the future.
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