ActiveAllocator.com, is seeking to enter into an equity swap, revenue sharing or a partnering arrangement with an established financial services company. We now have the world’s first portal that seamlessly integrates traditional, illiquid and alternative investments within portfolios. We help investors analyze existing allocations, discover inefficiencies and create bespoke portfolios in minutes. If you see complementary synergies and understand the Fintech space well, have decision steering authority, do email me in confidence at email@example.com or call me on +1 312 498 1903, NY.
I explain our business in this short video.
#ActiveAllocator develops state of art algorithms to capture different rates of coronacrisis recovery within countries and international equity markets. Here is the general design idea. We naturally also include multiple other proprietary dynamic factor drivers specific to coronavirus trackers, which are not shown here.
The objective is to rank the attractiveness of regional equity markets over a 12-month time frame
- The ranks are based on a composite score
- The composite score is a weighted average of individual ranks for various factors:
- Valuation factors include Forward PE, PEG, Price to Book and Yield Gap
- For each valuation factor we
- Generate for each region a z-score (current level – 15 year historical average / standard deviation over that 15 year period) .
- Rank the regions based on their z-scores, in other words based on how far the current valuation is from the historical norm (for most factors a low score ranks highest, but for Yield Gap a larger number ranks highest)
- Momentum factors include earnings revision breadth and earnings revisions depth. Larger, positive numbers rank highest
- Use different factors and different weights for developed markets and emerging markets
#ActiveAllocator Research Case Study – We successfully demonstrated to the world’s perhaps most sophisticated Government Investment Fund that our proposed changes to their strategic portfolio could increase annual returns by over 60 bps, while holding risk constant. That’s a non-trivial returns enhancement when you are speaking about hundreds of billions of dollars. Never underestimate the power of Strategic Asset Allocation done correctly. Here is a snapshot of one such portfolio sleeve by way of illustration (NDA prohibits us from disclosing specifics).
#ActiveAllocator Research – I was in essence recently asked “Why does ActiveAllocator create public goods by publishing its proprietary research?”. I guess an answer is we are in the business of creating incremental alpha for our clients, and holding on to ideas in a fast moving world is seldom optimal. Here is a visual on how we recently helped a very large public fund – where strategic asset allocation was a small part of our engagement.
Client has an objective to:
– increase returns by 100bps
– lower volatility
– Sharpe ratio of 0.5
Client has made substantial changes to its strategic asset allocation
These changes have the potential to add a great deal of value, although in and of themselves, they will not necessarily meet the above objectives
– Based on ActiveAllocator’s proprietary models, “index-like” returns in each asset category will achieve approximately 60% of the return objective
To fully meet its objectives, Client will need to
– enhance performance through long-run value-added activities (“offense”)
– minimize ‘slippage’ in the portfolio during the transition period (“defense”)
While accomplishing these objectives will involve connecting a myriad set of puzzle pieces, Client should focus intensively on what may be the most important implementation areas
– enhancing internal alpha generation capabilities
– implementing an alternative investment strategy which maximizes value
– effective portfolio management
Ten year real yields are negative and among the lowest in past 50 years
Fed has little ability to reduce rates further other than negative rates which are unlikely. Ongoing quantitative easing to continue to keep rates near zero. Pace and amount of bond purchases to watch.
Oil prices recover. Storage tanks, pipelines and tankers no longer overwhelmed. OPEC action buoys market.
Dollar strengthens, trade deficit shrinks and developed market interest rates converge.
June adds 4.8 million jobs dropping unemployment to 11.1%. However post mid – June coronavirus rise effects not captured.
The WSJ Friday July 3, B11 article “Recovery Hope Fuel Bets on Lower Volatility” says that traders are projecting calmer markets as the VIX drops to a low 28. We analyzed variance swaps for the last 14 years and our take on payouts is presented here.
Too early to tell which factors will outperform in 2020.
Sectors impacted by low oil prices, materials, discretionary and industrial have performed poorly. Health-care, staples and utilities have held up.
Value stocks are priced cheaper than growth. Market expectations of economic growth are low for 2020 and value stocks have historically outperformed in similar environment.
Cash being conserved as over a quarter of companies suspend buy backs. Negative earnings to pressure dividends. R&D and Capex cuts. M&A activity slows.