Quantitative investing and the challenge of data on a global scale
With its integrated approach to systems and data, Old Mutual Investment Group's skilled team ensures good portfolios
Among local investors, there has been a historical bias towards fundamental asset management, particularly in offshore markets.
Given the sheer scale of the market, investors face the challenge of analysing the global universe.
A world of opportunity
With the recent change in the Pension Funds Act Regulation 28, increasing the offshore allocation for investors to 45%, it has opened up opportunities for increased diversification.
The local equity universe has shrunk significantly over the past two decades and so has the opportunity for local managers. Many locally listed companies make a notable portion of their revenue in the global space too.
This regulatory change expands the pool of opportunities available to local investors, ultimately providing better diversification and liquidity, as well as providing diversified exposure to growing economies not available at present in SA.
Processing the torrent of data
The amount of data and the interactions between companies, sectors and countries, and the effects of macroeconomic factors increases the scale of the coverage needed for global markets.
The size of a fundamental team would need to increase as the size of the investible universe increases, because each company would have to be researched and compared against other companies.
Given this challenge, there has been an increasing shift towards global quantitative strategies, which is expected to continue.
Quantitative (or quant) investing is a term used to describe a wide variety of mathematical models and strategies implemented systematically by asset management firms to construct and manage client portfolios.
The growth of quantitative investing started in the 1970s and has evolved in both active and passive portfolios, employing repeatable, sustainable and evidence-based analyses of large amounts of data to manage diverse and risk-cognisant portfolios in a scalable and effective manner.
A few data scientists and computers are very cost effective compared to the army of fundamental analysts and portfolio managers which would be needed to cover the global equity universe.
In contrast, the shift from a local to a global quantitative team needs only the addition of computation power for processing of the data.
An evolving skill set
Locally, there has been a massive increase in the number and variety of index funds becoming quantitatively managed.
Old Mutual Investment Group (OMIG) believes that active equity investing will follow a similar trend as investors get more comfortable with quantitative investing and the ever-increasing pressure on fees.
Quantitative investing depends on systems and data infrastructure to combine speed and accuracy to implement good portfolios.
A skilled and curious research team that takes an integrated approach with strong data infrastructure will be the future for local asset managers who want to benefit from the global universe.
Quantitative investing depends on systems and data infrastructure to combine speed and accuracy to implement good portfolios
A quant approach yielding results
OMIG has been implementing quantitative strategies for more than 20 years, and has expanded research into global markets by launching a range of globally focused quant funds.
Our quant capability is supported by a well-balanced team of highly experienced quants and younger talent that keeps us at the forefront of quant and data research.
We remain aware of the new and rising frontiers of statistical techniques, like machine learning and artificial intelligence, that are increasingly being factored into the evolution of quantitative strategies.
The balance of experience and energy, and a diversity of ideas, is the key to our global quantitative success. This is demonstrated through the performance of our global quant portfolio offerings, in particular, the Old Mutual Global Managed Alpha Fund.
The fund uses a proprietary systematic model to evaluate six broad market drivers or factor buckets — value, growth, quality, momentum, size and volatility — to take a style-agnostic approach.
Since its inception in December 2017, it has delivered a solid track record with gross composite returns of 8.1% vs the benchmark at 6.5% over the same period.
Over one year it has delivered 23.4% vs the benchmark at 20.8%, over three years 8.6% vs the benchmark at 6.9% and 7.9% over five years vs the benchmark at 6.5%.
This performance showcases the compelling advantage offered by quantitative investing for local investors looking to diversify their exposure offshore.
By harnessing the power of data-driven analysis and mathematical models, OMIG can continue to develop quant investing to achieve a systematic and disciplined approach to investing that transcends geographical boundaries.
This article was sponsored by Old Mutual Investment Group.